Verticillium dahliae (Vd) is a soil-borne vascular pathogen which causes severe wilt symptoms in a wide range of plants. The microsclerotia produced by the pathogen survive in soil for more than 15 years. Here we demonstrate that an exudate preparation induces cytoplasmic calcium elevation in Arabidopsis roots, and the disease development requires the ethylene-activated transcription factor EIN3. Furthermore, the beneficial endophytic fungus Piriformospora indica (Pi) significantly reduced Vd-mediated disease development in Arabidopsis. Pi inhibited the growth of Vd in a dual culture on PDA agar plates and pretreatment of Arabidopsis roots with Pi protected plants from Vd infection. The Pi-pretreated plants grew better after Vd infection and the production of Vd microsclerotia was dramatically reduced, all without activating stress hormones and defense genes in the host. We conclude that Pi is an efficient biocontrol agent that protects Arabidopsis from Vd infection. Our data demonstrate that Vd growth is restricted in the presence of Pi and the additional signals from Pi must participate in the regulation of the immune response against Vd.