Xylem-associated fungus can secrete many secondary metabolites to help Aquilaria trees resist various stresses and play a crucial role in facilitating agarwood formation. However, the dynamics of endophytic fungi in Aquilaria sinensis xylem after artificial induction have not been fully elaborated. Endophytic fungi communities and xylem physio-biochemical properties were examined before and after induction with an inorganic salt solution, including four different times (pre-induction (0M), the third (3M), sixth (6M) and ninth (9M) month after induction treatment). The relationships between fungal diversity and physio-biochemical indices were evaluated. The results showed that superoxide dismutase (SOD) and peroxidase (POD) activities, malondialdehyde (MDA) and soluble sugar content first increased and then decreased with induction time, while starch was heavily consumed after induction treatment. Endophytic fungal diversity was significantly lower after induction treatment than before, but the species richness was promoted. Fungal β-diversity was also clustered into four groups according to different times. Core species shifted from rare to dominant taxa with induction time, and growing species interactions in the network indicate a gradual complication of fungal community structure. Endophytic fungi diversity and potential functions were closely related to physicochemical indices that had less effect on the relative abundance of the dominant species. These findings help assess the regulatory mechanisms of microorganisms that expedite agarwood formation after artificial induction.