Pseudomonas fluorescens strain 3JW1, which has a broad-spectrum antimicrobial activity, was studied to investigate whether it affects the amounts of aflatoxin B1 (AFB1) produced by Aspergillus flavus. It was found that the bacterium reduced the amounts of AFB1 in potato dextrose broth (PDB) and peanut medium by 97.8% and 99.4%, respectively. It also reduced AFB1 by ~183 μg/kg (55.8%) when applied onto peanut kernels. This strain reduced AFB1 via three mechanisms. First, it significantly inhibited A. flavus growth; second, our data showed that strain 3JW1 inhibits aflatoxin biosynthesis by A. flavus; and third, P. fluorescens strain 3JW1 is capable of degrading AFB1 at a rate as high as 88.3% in 96 hours. This is the first report demonstrating that Pseudomonas fluorescens can reduce toxin contamination caused by A. flavus on peanut kernels. Our findings indicate that P. fluorescens strain 3JW1 had multiple effects including reducing A. flavus infection and aflatoxin contamination. And the results also highlight the potential applications of the strain 3JW1 for the biological control of aflatoxin contamination in peanuts and other susceptible crops.