The use of biological control agents (BCAs) is a promising alternative control measure for Fusarium crown rot (FCR) of wheat caused by Fusarium pseudograminearum. A bacterial strain, YB-185, was isolated from the soil of wheat plants with FCR and identified as Bacillus velezensis. YB-185 exhibited strong inhibition of F. pseudograminearum mycelial growth and conidial germination in culture. Seed treatment with YB-185 in greenhouse and field resulted in reductions in disease by 66.1% and 57.6%, respectively, along with increased grain yield. Microscopy of infected root tissues confirmed that YB-185 reduced root invasion by F. pseudograminearum. RNA-seq of F. pseudograminearum during co-cultivation with B. velezensis YB-185 revealed 5086 differentially expressed genes (DEGs) compared to the control. Down-regulated DEGs included genes for glucan synthesis, fatty acid synthesis, mechanosensitive ion channels, superoxide dismutase, peroxiredoxin, thioredoxin, and plant-cell-wall-degrading enzymes, whereas up-regulated DEGs included genes for chitin synthesis, ergosterol synthesis, glutathione S-transferase, catalase, and ABC transporters. In addition, fungal cell apoptosis increased significantly, as indicated by TUNEL staining, and the scavenging rate of 2,2′-Azino-bis(3-ethylbenzothiazoline-6-sulfonic acid) diammonium salt radical cation (ABTS·+) in the fungus significantly decreased. Thus, F. pseudograminearum may be trying to maintain normal cell functions by increasing cell wall and membrane synthesis, antioxidant and anti-stress responses, detoxification of bacterial antimicrobial compounds, and transportation of damaging compounds from its cells. However, cell death and free radical accumulation still occurred, indicating that the responses were insufficient to prevent cell damage. Bacillus velezensis YB-185 is a promising BCA against FCR that acts by directly damaging F. pseudograminearum, thus reducing its ability to colonize roots and produce symptoms.