ABSTRACT Research on the mechanisms employed by the biocontrol agent Trichoderma virens to suppress cotton (Gossypium hirsutum) seedling disease incited by Rhizoctonia solani has shown that mycoparasitism and antibiotic production are not major contributors to successful biological control. In this study, we examined the possibility that seed treatment with T. virens stimulates defense responses, as indicated by the synthesis of terpenoids in cotton roots. We also examined the role of these terpenoid compounds in disease control. Analysis of extracts of cotton roots and hypocotyls grown from T. virens-treated seed showed that terpenoid synthesis and peroxidase activity were increased in the roots of treated plants, but not in the hypocotyls of these plants or in the untreated controls. Bioassay of the terpenoids for toxicity to R. solani showed that the pathway intermediates desoxyhemigossypol (dHG) and hemigossypol (HG) were strongly inhibitory to the pathogen, while the final product gossypol (G) was toxic only at a much higher concentration. Strains of T. virens and T. koningii were much more resistant to HG than was R. solani, and they thoroughly colonized the cotton roots. A comparison of biocontrol efficacy and induction of terpenoid synthesis in cotton roots by strains of T. virens, T. koningii, T. harzianum, and protoplast fusants indicated that there was a strong correlation (+0.89) between these two phenomena. It, therefore, appears that induction of defense response, particularly terpenoid synthesis, in cotton roots by T. virens may be an important mechanism in the biological control by this fungus of R. solani-incited cotton seedling disease.