The suppressive effects of microbial inoculants on cotton seedling mortality were assessed in Rhizoctonia solani‐infested soil. Per cent mortality ranged from 16 to 32 (60–120 days after sowing, DAS) and significant differences were recorded at 120 DAS, especially after drenching with compost tea of Azotobacter sp. and Anabaena torulosa—Trichoderma viride‐biofilmed formulations. The activity of hydrolytic enzymes was reduced in diseased root tissues due to a majority of the microbially inoculated treatments, compared with healthy root tissues. Per cent changes in the amounts of glomalin‐related soil proteins (GRSPs) were 2 to 85% greater than those of the uninoculated experimental controls. These microbial inoculants altered the rhizosphere bacterial communities as evident from the Denaturing gradient gel electrophoresis (DGGE) banding patterns and, also reduced the population of R. solani. While the copy numbers of the internal transcribed spacer (ITS) gene of R. solani in the uninoculated (infested soil) were approximately 1.47 × 1011 per g soil, they were 1.34–1.42 × 105 per g soil after the application of A. torulosa, Anabaena laxa and A. torulosa–Bacillus sp. Increases in yield (ranging from 3 to 23%) due to various microbial inoculants relative to uninoculated controls illustrated their promise as plant growth‐promoting and disease‐suppressing agents. This study illustrates the modulation of rhizosphere ecology through microbial inoculants as a mechanism of disease suppression and sustaining plant growth.