Kosakonia cowanii strain Ch1 was isolated from Mexican chili powder, and the genome was sequenced. The genome was 4,765,544 bp in length, with an average G + C content of 56.22%, and a plasmid (pCh1) of 128,063 bp with an average G + C content of 52.50%. A phylogenetic analysis revealed a close relation with pathogenic strains; nevertheless, some virulence-related genes were absent, and this genetic characteristic may explain the fact that K. cowanii Ch1 behaved as a non-pathogenic strain when infection assays were performed on the leaves and fruits of Capsicum annuum L. Surprisingly, we observed that this bacterial strain had the ability to spread throughout serrano pepper seeds. Furthermore, K. cowanii Ch1 was evaluated for the production of volatile organic compounds (VOCs) against fungal pathogens, and the results showed that Alternaria alternata and Sclerotium rolfsii were inhibited in a radial mycelial growth assay by a mean rate of 70% and 64%, while Fusarium oxysporum was inhibited by only approximately 10%. Based on the headspace solid-phase microextraction combined with the gas chromatography mass spectrometry (HS-SPME-GC-MS), 67 potential VOCs were identified during the fermentation of K. cowanii Ch1 in TSA medium. From these VOCs, nine main compounds were identified based on relative peak area: dodecanoic acid; 3-hydroxy ethanol; 1-butanol-3-methyl; acetaldehyde; butanoic acid, butyl ester; cyclodecane; 2-butanone, 3-hydroxy; disulfide, dimethyl and pyrazine-2,5-dimethyl. Our findings show the potential of K. cowanii Ch1 for the biocontrol of fungal pathogens through VOCs production and reveal additional abilities and metabolic features as beneficial bacterial specie.