Plant diseases are a serious threat to the health and functionality of both natural and man-made ecosystems. Diverse methods and strategies are being employed to prevent, ameliorate or control plant diseases. Unsustainable practices such as use and misuse of synthetic fungicides have caused severe harm to human health, wildlife and the environment. However, sustainable and eco-friendly approaches such as use of beneficial fungi have gained significant attention worldwide due to their remarkable antagonistic properties against plant pathogens and copious successful applications. Trichoderma species, arbuscular mycorrhizas, ectomycorrhizas, endophytes, yeasts, and avirulent/hypovirulent strains of certain pathogens are among the main beneficial fungi with biocontrol capacity, some of which have been mass-produced and extensively applied. Understanding the mechanisms linked with the protective effects of beneficial fungi is essential for achieving favorable outcomes and development of novel strategies. The biocontrol mechanisms of beneficial fungi can be categorized into five classes: i) competing with pathogens for space and nutrients, ii) mycoparasitism, iii) antibiosis, iv) mycovirus-mediated cross protection (MMCP), and v) induced systemic resistance (ISR). Bearing in mind the technical advances in genetics and biotechnology over the past decades, it is now more feasible to manipulate the biocontrol-related features in fungi or host plants, which include: incorporation of fungal genes encoding antimicrobial compounds (such as chitinases) into the plant genome, overexpression or disruption of certain fungal genes to improve the biocontrol efficiency or broaden the pathogen target spectrum, development of avirulent/hypovirulent strains for fungal pathogens using hypovirulence-associated mycoviruses, and conferring ISR to plants via fungus-based elicitors. In this review, we explore the biocontrol mechanisms in beneficial fungi and conclude by highlighting the potential practical implications.