The present study was conducted to evaluate the efficacy of the bacterial bio-fungicide Bacillus subtilis against Colletotrichum truncatum, the causal agent of anthracnose and fruit rot in chilli (Capsicum annuum L.). A total of 10 Bacillus spp. isolates were obtained from the rhizosphere soil of major chilli-growing regions in Tamil Nadu, India. Characterisation through various methods, including molecular analysis, confirmed that these isolates belonged to the Bacillus genus. Additionally, molecular and in vitro screening identified Bacillus subtilis (Accession No. MZ618269) and Bacillus cereus (Accession No. MZ618270) as highly effective in inhibiting C. truncatum. Furthermore, PCR analysis revealed that Bacillus spp. isolates Bs-PLM and Bc-ADP possessed the genes responsible for the synthesis of the antibiotics iturin and surfactin. GC–MS analysis indicated that these isolates produced more than 30 antimicrobial compounds at different retention times, with the most notable antifungal compounds being n-Nonadecanol-1, 1-Hexadecanol, Behenic alcohol and Dibutyl phthalate. The volatile compounds released by Bs-PLM and Bc-ADP exhibited the highest mycelial growth inhibition. Under in vivo conditions, fruit lesion areas were significantly reduced when pathogen-inoculated fruits were treated with volatiles produced by these Bacillus strains compared to the untreated control fruits. Therefore, the Bacillus spp. could be used for the effective management of anthracnose and fruit rot disease in chillies.