Microbial secondary metabolites produced by Streptomyces are applied to control plant diseases. The metabolite, ε-poly-L-lysine (ε-PL), is a non-toxic food preservative, but the potential application of this compound as a microbial fungicide in agriculture is rarely reported. In this study, the effect and mode of action of ε-PL on two necrotrophic pathogenic fungi, Sclerotinia sclerotiorum and Botrytis cinerea, were investigated. The results showed that ε-PL effectively inhibited the mycelial growth of S. sclerotiorum and B. cinerea with EC50 values of 283 μg/mL and 281 μg/mL, respectively. In addition, ε-PL at the dose of 150 and 300 μg/mL reduced S. sclerotiorum sclerotia formation. The results of the RNA-seq and RT-qPCR validation indicated that ε-PL significantly regulated the gene expression of critical differential expressed genes (DEGs) involved in fungal growth, metabolism, pathogenicity, and induced an increase in the expression of the fungal stress responses and the detoxification genes. These results provided new insights for understanding the modes of action of ε-PL on S. sclerotiorum and B. cinerea and improved the sustainable management of these plant diseases.