Soybean root rot, primarily caused by Fusarium oxysporum, leads to severe root decay and substantial yield losses in Glycine max. This study screened ten entomopathogenic nematode-associated symbiotic bacteria for antagonistic activity against F. oxysporum. Among them, Xenorhabdus budapestensis XH-4 exhibited the strongest in vitro inhibition, suppressing mycelial growth by more than 73%. Antifungal activity was primarily attributed to extracellular metabolites, as both fermentation broth and cell-free culture supernatant were effective, whereas bacterial cell suspensions showed no significant inhibition. In greenhouse experiments, 40% (v/v) XH-4 reduced the disease index by 75–80%, comparable to the chemical fungicide metalaxyl–hymexazol. Genome mining revealed 20 biosynthetic gene clusters encoding diverse secondary metabolites, including fabclavine, fabclavine pyrrolizixenamide A, and putrebactin/avaroferrin, which likely underpin the strain antifungal efficacy. Additionally, XH-4 enhanced soybean antioxidant capacity and activated the phenylpropanoid pathway, indicating a dual mechanism involving direct antagonism and induced systemic resistance. These findings support the development of XH-4 as an environmentally friendly biofungicide for sustainable management of soybean root rot.