Background Sclerotium rolfsii is a soil-borne fungal pathogen causing diseases in more than 500 plant species. It causes southern blight disease in chili. Chemical fungicides are used to control this disease, which also pollute the environment. The present study was designed to assess the potential of two species of plant-growth-promoting rhizobacteria (PGPR) viz. Bacillus megaterium and Pseudomonas fluorescence, and an allelopathic weed, Anagallis arvensis L., for the control of southern blight disease of chili. Results Initially, three PGPR strains, viz. B. megaterium OSR3, B. megaterium ZMR6, and P. fluorescence PF-097, were selected for their in vitro antagonistic assessment against S. rolfsii by dual culture technique on potato dextrose agar medium. OSR3 showed the highest antagonistic potential (68%), followed by PF-097 (54%) and ZMR6 (33%). In a pot experiment, the two best strains of PGPR, namely OSR3 and PF-097, and dried biomass of A. arvensis (DBA) in different concentrations (1, 2 and 3%) were used to manage southern blight disease of chili. In positive control treatment (S. rolfsii only), plant survival was low (73%) than the negative control (100%). OSR3, PF-097, OSR3 + 2% DBA, and PF-097 + 2% DBA significantly enhanced plant survival over positive control. The highest increase in chili growth over positive control was recorded due to OSR3, followed by PF-097 inoculations. Contents of carotenoid and chlorophyll were significantly decreased due to the fungal pathogen and improved due to PGPR strains. Application of the two PGPR strains and different concentrations of A. arvensis distinctly increased the catalase (CAT), peroxidase (POX), and polyphenol peroxidase (PPO) activities over positive control. Conclusions The present study concluded that PGPR strains B. megaterium OSR3 and P. fluorescence PF-097 can control southern blight disease effectively and increase growth and yield of chili.