In the current study, a total of 70 fungi were isolated from the rhizosphere soil of chilli collected from six different districts of south Karnataka, India. All the rhizospheric fungi were evaluated for its antagonistic nature against Colletotrichum capsici—the causal agent of anthracnose disease—and eight isolates were found positive. The antagonistic fungi were further characterized for the production of plant growth-promoting traits wherein five isolates were recorded positive for all the traits tested and were also positive for root colonization. All five plant growth-promoting fungi (PGPF) were subjected to molecular characterization for identification up to the species level and the accession numbers were obtained from NCBI. The five isolates, namely NBP-08, NBP-45, NBP-61, NBP-66 and NBP-67, were further experimented with on susceptible seeds to evaluate its efficacy on seed and plant growth parameters along with induction of resistance against the anthracnose disease. The evaluated PGPF offered significant enhancement in seed and plant growth parameters with maximum improvement observed in seeds treated with NBP-61. Among the PGPF isolates, NBP-61 showed the maximum protection of 78.75%, while all the other isolates also showed significant protection against anthracnose disease compared to untreated plants. The higher accumulation of lignin and callose deposition along with enhanced defense enzyme activities in the PGPF-treated challenge-inoculated seedlings authenticated the protection offered by PGPF. The study evidenced the immense ability of PGPF in eliciting disease protection and enhancement of plant growth in chilli, which may act as a possible substitute for harmful chemicals.