The rice endophyte Streptomyces hygroscopicus OsiSh-2, with remarkable antagonistic activity towards the rice blast fungus Magnaporthe oryzae, was reported in our previous study. The present study deciphered the possible direct interaction mode of OsiSh-2 against M. oryzae. An in vitro antibiotic assay for OsiSh-2 culture filtrate revealed strong suppression of mycelial growth, conidial germination and appressorial formation of M. oryzae. Meanwhile, severe morphological and internal abnormalities in M. oryzae hyphae were observed under a scanning electron microscope and transmission electron microscope. Foliar treatment of rice seedlings by OsiSh-2 culture filtrate in the greenhouse and in the field showed 23.5% and 28.3% disease reduction, respectively. Correspondingly, OsiSh-2 culture filtrate could induce disorganized chitin deposition in the cell wall and lowered ergosterol content in the cell membrane of M. oryzae. Additionally, cell wall integrity pathway activation, large cell electrolytes release, reactive oxygen species accumulation and tricarboxylic acid cycle-related enzyme activity changes were found in M. oryzae. All these results suggested that the direct antagonistic activity of OsiSh-2 against M. oryzae may be attributed to damaging the integrity of the cell wall and membrane and disrupting mitochondrial function in the pathogen.