Allelopathy is an underlying and controversial mechanism for detrimental environmental effects in the management of Eucalyptus plantations. However, little attention has been paid to the dynamics of allelochemicals and phytotoxicity in soil fauna during litter decomposition. To explore the relationship between the dynamics of phytotoxicity and allelochemicals, a decomposition experiment was conducted using 4-year-old and 8-year-old Eucalyptus grandis litter (0, 10, 20, 30, and 45 days). The acute toxicity of Eisenia fetida was assessed, and a chemical analysis of the eucalyptus leaves was performed. Biochemical markers, including total protein, acetylcholinesterase (AChE) activity, and oxidative stress levels (SOD and MDA) were measured. A comet assay was used to determine DNA damage in E. fetida cells. The results showed that after 20-30 days of decomposition, E. grandis litter exhibited stronger phytotoxic effects on E. fetida in terms of growth and biochemical levels. After 20 days of decomposition, the weight and total protein content of E. fetida first decreased and then increased over time. SOD activity increased after 20 days but decreased after 30 days of decomposition before increasing again. MDA content increased after 20 days, then decreased or was stable. AChE activity was inhibited after 30 days of decomposition and then increased or stabilized with further decomposition. Soluble allelochemicals, such as betaine, chlorogenic acid, and isoquercitrin, significantly decreased or disappeared during the initial decomposition stage, but pipecolic acid significantly increased, along with newly emerging phenolic fractions that were present. More allelochemicals were released from 8-year-old litter than from 4-year-old E. grandis litter, resulting in consistently more severe phytotoxic responses and DNA damage in E. fetida. Scientific management measures, such as the appropriate removal of leaf litter in the early stages of decomposition, might help support greater biodiversity in E. grandis plantations.