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Verticillium wilt is a plant vascular disease caused by the soilborne fungus  Verticillium dahliae  that severely limits cotton production. In a previous study, we screened  Bacillus cereus  YUPP‐10, an efficient antagonistic bacterium, to uncover mechanisms for controlling verticillium wilt. Here, we report a novel antimicrobial cyclodextrin glycosyltransferase (CGTase) from YUPP‐10. Compared to other CGTases, six different conserved domains were identified, and six mutants were constructed by gene splicing with overlap extension PCR. Functional analysis showed that domain D was important for hydrolysis activity and domains A1 and C were important for inducing disease resistance. Direct effects of recombinant CGTase on  V. dahliae  included reduced mycelial growth, spore germination, spore production, and microsclerotia germination. In addition, CGTase also elicited cotton's innate defence reactions. Transgenic  Arabidopsis thaliana  lines that overexpress CGTase showed higher resistance to verticillium wilt. Transgenic CGTase  A. thaliana  plants grew faster and resisted disease better.  CGTase  overexpression enabled a burst of reactive oxygen species production and activated pathogenesis‐related gene expression, indicating that the transgenic cotton was better prepared to protect itself from infection. Our work revealed that CGTase could inhibit the growth of  V. dahliae , activate innate immunity, and play a major role in the biocontrol of fungal pathogens.

CGTase, a novel antimicrobial protein from Bacillus cereus YUPP‐10, suppresses Verticillium dahliae and mediates plant defence responses