The endophytic fungus Epichloë festucae is known to produce bioactive metabolites, which consequently protect the host plants from biotic and abiotic stresses. We previously found that the overexpression of vibA (a gene for transcription factor) in E. festucae strain E437 resulted in the secretion of an unknown fungicide. In the present study, the active substance was purified and chemically identified as ε-poly-L-lysine (ε-PL), which consisted of 28–34 lysine units. The productivity was 3.7-fold compared with that of the wild type strain E437. The isolated ε-PL showed inhibitory activity against the spore germination of the plant pathogens Drechslera erythrospila, Botrytis cinerea, and Phytophthora infestans at 1–10 μg/mL. We also isolated the fungal gene “epls” encoding ε-PL synthetase Epls. Overexpression of epls in the wild type strain E437 resulted in the enhanced production of ε-PL by 6.7-fold. Interestingly, overexpression of epls in the different strain E. festucae Fl1 resulted in the production of shorter ε-PL with 8–20 lysine, which exhibited a comparable antifungal activity to the longer one. The results demonstrate the first example of ε-PL synthetase gene from the eukaryotic genomes and suggest the potential of enhanced expression of vibA or/and epls genes in the Epichloë endophyte for constructing pest-tolerant plants.