The inhibition mechanism of antifungal substance generated by Streptomyces alboflavus against Fusarium moniliforme was investigated.The antifungal substance was qualitatively analyzed by pH paper and Doskochilova system chromatography. The destructive effects of antifungal substance on cell membrane and cell wall of Fusarium moniliforme were observed by fluorescence microscopy and scanning electron microscopy. The antagonistic effects of main components of cell membrane and wall on antifungal substance were explored. Furthermore, the inhibitory effect of antifungal substance on ergosterol in cell membrane of Fusarium moniliforme was detected by HPLC. The antifungal substance was neutral and non-water-soluble type I antibiotics by polarity test and Doskochilova system paper chromatography. Optical microscope was used to observe the inhibition of germination of Fusarium moniliforme spores, the mycelia were distortion, deformation and swelling when treated with the antifungal substance, and the fluorescence microscope revealed that the permeability of mycelial cell membrane was changed. Moreover, the results from scanning electron microscope showed that the surface of vesicular mycelia was uneven and fragments remained. The antagonism of antifungal substance effect on components of cell wall and cell membrane and the detection by HPLC showed that the synthesis of ergosterol in the cell membrane was affected by antifungal substance. The synthesis of ergosterol in the cell membrane of Fusarium moniliforme was affected by the antifungal substance produced by Streptomyces alboflavus. This study laid a theoretical foundation on the identification of antifungal substance and the application of antagonistic bacteria.