The growth of Eucalyptus regnans F.Muell. (mountain ash) seedlings is poor in natural forest soil, where purple coloration of the foliage indicates P deficiency and where the fungus Cylindrocarpon destructans (Zinsm.) Scholten is commonly isolated from the roots of the seedlings. When forest soil is air-dried, P acquisiton and growth of seedlings are markedly improved, although the degree of growth stimulation varies considerably at different times, as does the frequency of occurrence of C. destructans on the roots. C. destructans has been implicated as a possible reason for suppressed growth of seedlings in undried natural soil. To find out whether C. destructans contributes to growth inhibition of E. regnans seedlings in undried forest soil, the effect of three isolates of C. destructans on the root growth of E. regnans seedlings was tested in Petri dish experiments in vitro and the effect of C. destructans inoculation on seedling growth both in air-dried and undried forest soil was tested in pot experiments. The frequency of occurrence of C. destructans on the roots varied at different times, and was not consistently higher in undried than in air-dried soil, even though the growth of the seedlings was always poor in undried soil compared with that in air-dried soil. In vitro, C. destructans decreased the root growth significantly and caused blackening of root tips. This effect was removed by adding natural air-dried or undried soil. In pot experiments using undried forest soil, there was no evidence of either direct toxic effect or any other adverse effect on the roots when soil was inoculated with this fungus, even when the growth of the seedlings was reduced to ~1/2 of that in uninoculated undried soil. In air-dried soil, inoculation with the fungus did not significantly reduce seedling growth. Although potentially pathogenic and able to cause blackening of root tips, C. destructans is unlikely to be the main reason for poor seedling growth in undried forest soil. It appears to be antagonistic rather than pathogenic, suppressing seedling growth only under unfavourable conditions, such as in undried soil, possibly by competing for limited nutrients, or by suppressing other beneficial micro-organisms. The results are discussed in the context of field conditions.