Bacillus amyloliquefaciens Q-426 with strong antifungal activity was isolated from compost samples in Dalian of China. Four kinds of diketopiperazines were extracted from the strain including cyclo (Pro-Phe) (cPP) which had both D- and L-isomers. Studies in this paper found that cPP production and antifungal activity were affected by environmental factors including incubation time, temperature, pH and carbon source in the media. The results indicated that cPP had a significant effect on the antifungal activity of B. amyloliquefaciens Q-426, and the previous studies found that cPP showed a positive response to biosensors which were used to detect signal molecules. Based on these studies, diketopiperazines were suspected as the signal molecule of B. amyloliquefaciens Q-426.