Fusarium wilt disease in watermelon is widespread and responsible for serious economic losses. Petri dish experiments were performed to assess the effect of root exudates of 10 wheat varieties on mycelium growth of Fusarium oxysporum f. sp. niveum (Fon). The results showed that D123 wheat root exudates significantly inhibited mycelial growth of Fon. Pot experiments were performed to investigate the responses of Fusarium wilt in watermelon to companion cropping with D123 wheat. The results showed that watermelon seedlings suffered less Fusarium wilt in a companion system as compared to a monoculture system. Compared with monoculture, companion cropping with D123 wheat decreased malondialdehyde content and guaiacol peroxidase activities in watermelon roots after inoculation with Fon, and companion cropping with D123 wheat increased the polyphenol oxidase activities before Fon inoculation and 15 days after Fon inoculation. Companion cropping with D123 wheat slightly increased β-1, 3-glucanase and chitinase activities in watermelon roots compared with monoculture. Companion cropping with D123 wheat decreased phenylalanine ammonia-lyase activities in watermelon roots at 5 days after Fon inoculation and increased phenylalanine ammonia-lyase activity at 15 days after Fon inoculation compared with monoculture. The jasmonic acid and shikimate–phenylpropanoid–lignin biosynthetic genes were induced during the early stage of Fon infection in companion cropping compared to monoculture. It is suggested that companion cropping with D123 wheat alleviated Fusarium wilt in watermelon by inhibiting the mycelial growth of Fon and by inducing physiological changes and gene expression to protect the watermelon from injury.