During seedling establishment, seedlings may be infected by several fungal pathogens that are seed or soil borne. Several species of Fusarium, Pythium and other water moulds cause seed rots during germination. Fusarium blights of seedlings are also very common and significantly affect seedling development. In the present study we screened nine endophytic bacteria isolated from the seeds of invasive Phragmites australis by inoculating onto rice, Bermuda grass (Cynodon dactylon), or annual bluegrass (Poa annua) seeds to evaluate plant growth promotion and protection from disease caused by Fusarium oxysporum. We found that three bacteria belonging to genus Pseudomonas spp. (SLB4-P. fluorescens, SLB6-Pseudomonas sp. and SY1-Pseudomonas sp.) promoted seedling development, including enhancement of root and shoot growth, and stimulation of root hair formation. These bacteria were also found to increase phosphate solubilization in in vitro experiments. Pseudomonas sp. (SY1) significantly protected grass seedlings from Fusarium infection. In co-culture experiments, strain SY1 strongly inhibited fungal pathogens with 85.71% growth inhibition of F. oxysporum, 86.33% growth inhibition of Curvularia sp. and 82.14% growth inhibition of Alternaria sp. Seedlings previously treated with bacteria were found much less infected by F. oxysporum in comparison to non-treated controls. On microscopic observation we found that bacteria appeared to degrade fungal mycelia actively. Metabolite products of strain SY1 in agar were also found to inhibit fungal growth on nutrient media. Pseudomonas sp. (SY1) was found to produce antifungal volatiles. Polymerase chain reaction (PCR) amplification using specific primers for pyrrolnitirin synthesis and HCN (hydrogen cyanide) production suggested presence of genes for both compounds in the genome of SY1. HCN was detected in cultures of SY1. We conclude that microbes from non-cultivated plants may provide disease protection and promote growth of crop plants.