Low-molecular-mass iron-reducing compounds (IRCs) were produced by entomopathogenic endophytic fungi Lecanicillium sp. ATA01 in liquid cultures. The extracellular hydrophilic extract contained three IRCs formed by peptides, iron and phenolate structures with molecular masses of 1207, 567 and 550 Da. These compounds were able to chelate and mediate the reduction of Fe+3 to Fe+2 and oxidized recalcitrant lignin-model substrates such as veratryl alcohol (VA), 2,6-dimethoxyphenol (DMP), and 2,2′-azino-bis (3-ethylbenzothiazoline-6-sulphonic acid (ABTS) with or without hydrogen peroxide. Besides, IRCs can promote the degradation of chlorophenols. The maximal degradation of p-chlorophenol, 2,4-dichlorophenol, 2,4,6-trichlorophenol, and pentachlorophenol was conducted at optimal degradation conditions for IRCs (pH 3.5, iron 100 mM, and H2O2 10 mM). Furthermore, Fenton-like reactions using the synthetic iron chelates DTPA and EDTA and free Fe+2 and Fe+3 were also carried out in order to compare with the reaction mediated by IRCs. The ferric IRCs displayed the ability to enhance the hydroxylation of chlorophenols as a part of a degradation mechanism of the IRC-assisted Fenton reaction. The complexed iron was more efficient than free iron in the Fenton-like reaction, and between them, the fungal chelates were more efficient than the synthetic mill chelates.