Mycoparasitic strains of Trichoderma are applied as commercial biofungicides for control of soilborne plant pathogens. Although the majority of commercial biofungicides are Trichoderma based, chemical pesticides, which are ecological and environmental hazards, still dominate the market. This is because biofungicides are not as effective or consistent as chemical fungicides. Efforts to improve these products have been limited by a lack of understanding of the genetic regulation of biocontrol activities. In this study, using gene knockout and complementation, we identified the VELVET protein Vel1 as a key regulator of biocontrol, as well as morphogenetic traits, in Trichoderma virens, a commercial biocontrol agent. Mutants with mutations in vel1 were defective in secondary metabolism (antibiosis), mycoparasitism, and biocontrol efficacy. In nutrient-rich media they also lacked two types of spores important for survival and development of formulation products: conidia (on agar) and chlamydospores (in liquid shake cultures). These findings provide an opportunity for genetic enhancement of biocontrol and industrial strains of Trichoderma, since Vel1 is very highly conserved across three Trichoderma species.