Antagonistic microorganisms against $Rhizoctonia$ $solani$ were isolated and their antifungal activities were investigated. Two hundred sixteen bacterial isolates were isolated from various soil samples and 19 isolates were found to antagonize the selected plant pathogenic fungi with varying degrees. Among them, isolate C9 was selected as an antagonistic microorganism with potential for use in further studies. Treatment with the selected isolate C9 resulted in significantly reduced incidence of stem-segment colonization by $R.$ $solani$ AG2-2(IV) in Zoysia grass and enhanced growth of grass. Through its biochemical, physiological, and 16S rDNA characteristics, the selected bacterium was identified as $Bacillus$ $subtilis$ subsp. $subtilis$. Mannitol (1%) and soytone (1%) were found to be the best carbon and nitrogen sources, respectively, for use in antibiotic production. An antibiotic compound, designated as DG4, was separated and purified from ethyl acetate extract of the culture broth of isolate C9. On the basis of spectral data, including proton nuclear magneric resonance ($^1H$ NMR), carbon nuclear magneric resonance ($^{13}C$ NMR), and mass analyses, its chemical structure was established as a stereoisomer of acetylbutanediol. Application of the ethyl acetate extract of isolate C9 to several plant pathogens resulted in dose-dependent inhibition. Treatment with the purified compound (an isomer of acetylbuanediol) resulted in significantly inhibited growth of tested pathogens. The cell free culture supernatant of isolate C9 showed a chitinase effect on chitin medium. Results from the present study demonstrated the significant potential of the purified compound from isolate C9 for use as a biocontrol agent as well as a plant growth promoter with the ability to trigger induced systemic resistance of plants.