Mushroom associated microbes could be utilized to improve crop productivity providing nutrients, plant growth promoting substances, production of hydrolytic enzymes and protecting plant from biotic and abiotic stress. An endophyte designated as KUFC101 was isolated from fruit body of Pleurotus ostreatus and identified as Porostereum umbrinoalutaceum based on nuclear-rRNA gene sequence analysis. Growth in different culture media, metal tolerance, biochemical characterization and effect on chilli plant growth promotion were studied. The isolate showed best growth in Malt extract medium and least growth in synthetic media. It could tolerate toxic metals (Mg, Ca, Fe, Cu, Mn, Zn and Cd each at 100ppm concentration). It produced amylase, cellulase, chitinase, pectinase, catecholate type of siderophore and indole acetic acid, and inhibited growth of Alternaria solani and Penicillium citrinum. It could colonize in the rhizosphere of chilli plant and influence growth of chilli plant by improving biomass and metabolite content. Porostereum umbrinoalutaceum KUFC101 could be utilized in formulation of biofertiliser under sustainable agricultural system.