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<i>Rhizoctonia cerealis</i> is a major fungal pathogen of wheat that causes great yield losses in all wheat-growing regions of the world. The biocontrol agent <i>Bacillus subtilis</i> XZ18-3 was investigated for inhibiting <i>R. cerealis</i> growth in wheat. The results of the mycelial growth test showed that the sterile filtrate of <i>B</i><i>. subtilis</i> XZ18-3 could significantly inhibit the mycelial growth of <i>R. cerealis</i> and cause swelling and rupture of the mycelium. Observation by transmission electron microscopy indicated that the sterile filtrate could penetrate the cellular membrane of <i>Rhizoctonia</i><i>cerealis</i>, resulting in organelle destruction. The effect of the sterile filtrates on the pathogen cells, shown through fluorescent microscopy using different stains, revealed the mechanism by which the sterile filtrate caused DNA fragmentation, accumulation of ROS and changes in cell membrane permeability. To reach a better treatment of the soil-borne fungi, the components of a wettable powder were screened and an optimised formula determined (30.0% kaolin, 4.0% polyvinyl alcohol, 8.0% Tween-80, 2.0% polyethylene glycol and 100% fermentation broth). A quality index analysis revealed that the wetting powder reached acceptable biological pesticide standards. Pot control experiments showed that the wettable powder of <i>B</i><i>. subtilis</i> XZ18-3 effectively controlled the pathogens with an efficacy of 88.28%. This study has provided the potential biocontrol agents (BCAs) for wheat sharp eyespot disease.