Verticillium biguttatum cannot utilise cellulose or nitrate-nitrogen and it requires biotin for growth, yet it grew and sporulated abundantly on Rhizoctonia solani on cellulose, obtaining at least organic carbon, nitrogen and biotin from R. solani. Videomicroscopy of inter-hyphal interactions on films of water agar showed that V. biguttatum behaved as a biotrophic mycoparasite. From germinating spores, it penetrated the hyphae of R. solani and formed haustorium-like branches without killing the host cells, and the haustoria supported an external mycelial network of the mycoparasite. Later the mycoparasite sporulated, and the infected host cells died. On cellulosic substrata V. biguttatum did not reduce the growth of R. solani, and often enhanced the rate of cellulose degradation. However, V. biguttatum drastically reduced the production of sclerotia by R. solani, often completely suppressing sclerotium production when the mycoparasite infected only a localized region of the host colony. This is ascribed to the creation of a nutrient sink by the parasite, consistent with biotrophy. On plates of cellulose agar the suppression of sclerotia was not confined to parasitized colonies but extended to adjacent colonies of R. solani that had successfully anastomosed with the parasitized colony. There was no effect on adjacent vegetatively incompatible colonies, where attempted anastomoses caused cytoplasmic death. In comparable experiments the necrotrophic mycoparasite Gliocladium roseum had no long-distance effect on sclerotium production by R. solani. Suppression of sclerotium production may explain the reported success of V. biguttatum in biocontrol of black scurf of potato in experimental field conditions.