The Fano effect or Fano resonance with a characteristically asymmetric line shape originates from quantum interference between direct and indirect transition pathways in continuumbound coupled systems, and is a ubiquitous phenomenon in atomic 1,2 , molecular 3 , nuclear 4,5 and solid-state physics 6-8 . In optical nanoscale structures, the Fano effect has wide-ranging applications that include optical filtering 9 , sensing 10 , all-optical switching 11 , quantum interferometry 12 and nonlinear optics 13 , and this opens new avenues for photonic devices. The emergent area of ultracold atomic and molecular gases presents an ideal platform for studying Fano resonances, since the physical parameters of these gases can be extensively tuned with high precision using external fields. However, an experimental demonstration of the Fano effect in hybridized atom-molecular coupled systems has remained elusive. Here, we report on observations of the Fano effect in molecular spectra obtained by photoassociation (PA) near a d-wave Feshbach resonance. This effect occurs due to quantum interference in PA transitions involving the continuum of atom-atom scattering states, the underlying Feshbach and photoassociated excited bound molecular states. We measure the variation in atom loss rate with an external magnetic field close to the Feshbach resonance in the presence of PA laser, and thereby clearly demonstrate the Fano effect. Our results further reveal that the Fano effect has significant influence on spectral shifts. Based on Fano's method, we develop a theory that explains the observed experimental results relatively well. Our theoretical formulation takes into account quantum interference between or among multiple transition pathways and between inelastic channels. Our results present a novel method for tuning the collisional interaction strength with laser light using Fano resonance.