Pochonia chlamydosporia is a promising nematophagous fungus known for its multifaceted role in the biological suppression of plant parasitic nematodes and the enhancement of plant health. This review provides a mechanistic perspective on its functional biology, systematically dissecting the pathways through which P. chlamydosporia establishes in the rhizosphere, parasitizes nematode eggs, produces bioactive metabolites and triggers systemic defense responses in host plants. The fungus exhibits robust colonization strategies both in soil and plant roots, driven by factors like inoculum density and environmental conditions. It secretes enzymes and forms specialized structures for nematode egg parasitism, while also synthesizing metabolites with nematicidal and plant-growth-promoting properties. Moreover, its endophytic interaction with host plants modulates signaling pathways, triggering systemic defense gene expression. Through its diverse mechanistic actions, P. chlamydosporia emerges as a powerful bioagent contributing to both nematode management and improved plant growth.