Biocontrol agents show promise in mitigating the drawbacks of synthetic chemicals. This study investigates potential biocontrol bacteria isolated from disease suppressive composts to reduce Fusarium dry rot on potato tubers, and to gain insight into the mode of action of Arthrobacter spp. The objectives were to (i) evaluate the antagonistic activity against Fusarium sambucinum in vitro and suppression of potato dry rot, (ii) assess the antimicrobial activity of Arthrobacter spp. in vitro and in vivo, and (iii) identify possible modes of action of these antagonistic bacteria. Results indicated that bacterial isolates from Bacillus, Pseudomonas, and Arthrobacter genera suppressed Fusarium dry rot. Additionally, Arthrobacter humicola M9-1A, M9-2, and M9-8, A. psychrophenolicus M9-17 and their cell-free filtrates possess antimicrobial properties suppressing various plant pathogens. Two antimicrobial compounds were isolated and characterized from A. psychrophenolicus M9-17. Overall, this study reported that antibiosis may be a major mode of action of these bacteria.