The hyphal growth and biocontrol efficacy of Trichoderma harzianum in soil may depend on its interactions with biotic components of the soil environment. The effect of soil microbial biomass on growth and biocontrol efficacy of T. harzianum isolate ThzID1-M3 (green fluorescent protein transformant) was investigated using artificially prepared different levels of soil microbial biomass (153, 328, or 517 mg biomass carbon per g of dry soil; BC). The hyphal growth of T. harzianum was significantly inhibited in the soil with 328 or 517 mg BC compared with 153 mg BC. When ThzID1-M3 was added to the soils as an alginate pellet formulation, the recoverable population of ThzID1-M3 varied, but the highest population occurred in 517 mg BC. Addition of alginate pellets of ThzID1-M3 to the soils (10 per 50 g) resulted in increased indigenous microbial populations (total fungi, bacteria, fluorescent Pseudomonas spp., and actinomycetes). Furthermore, colonizing ability of ThzID1-M3 on sclerotia of Sclerotinia sclerotiorum was significantly reduced in the soil with high level of BC. These results suggest that increased soil microbial biomass contributes to increased interactions between introduced T. harzianum and soil microorganisms, consequently reducing the biocontrol efficacy of T. harzianum.