The biocontrol strain BJ-1 was isolated from a contaminated Magnaporthe oryzae culture plate and identified as Bacillus subtilis based on morphological characteristics, Biolog Microlog identification and 16S rDNA sequence analysis. The dual culture test showed that BJ-1 has a wide antimicrobial spectrum, and is especially potent against M. oryzae. The culture filtrates of BJ-1 significantly inhibited mycelial growth of M. oryzae P131, caused mycelial disintegration and induced swollen germ tubes. RT-PCR revealed the expressions of seven lipopeptide synthesis genes, encoding surfactin (srfAA and SPAB-ERIB), fengycin (fenB and FENCEA), subtilin (spa and spaS) and bacilysin (BACD) in BJ-1. Application of 1 × 108 CFU mL−1 bacterial cells or 5% culture filtrates of BJ-1 completely suppressed rice blast on detached leaves. In pot experiments, both spray and seed treatments using culture broth provided more than 50% disease suppression on rice blast. Interestingly, rice seeds soaked in culture broth of BJ-1 before planting induced host systemic resistance to inhibit rice blast development and promote plant growth, with disease reduction of over 70%, at a similar level as the fungicide tricyclazole. Expressions of two PR genes (OsPR1a and OsPR10) and three genes (OsPAL, OsICS1 and OsAOS2) known to function in salicylate- and jasmonate-dependent defence signalling pathways in rice plants after seed treatment by culture broth of BJ-1 were significantly induced. This is the first description of the use of B. subtilis as a seed treatment for control of rice blast and these results indicate that B. subtilis BJ-1 is a highly promising biocontrol agent for suppression of rice blast disease.