Aspergillus flavus is one of the major moulds that colonize peanut in the field and during storage. The impact to human and animal health, and to the economy in agriculture and commerce, is significant since this mold produces the most potent known natural toxins, aflatoxins, which are carcinogenic, mutagenic, immunosuppressive, and teratogenic. A strain of marine Bacillus megaterium isolated from the Yellow Sea of East China was evaluated for its effect in inhibiting aflatoxin formation in A. flavus through down-regulating aflatoxin pathway gene expression as demonstrated by gene chip analysis. Aflatoxin accumulation in potato dextrose broth liquid medium and liquid minimal medium was almost totally (more than 98 %) inhibited by co-cultivation with B. megaterium. Growth was also reduced. Using expression studies, we identified the fungal genes down-regulated by co-cultivation with B. megaterium across the entire fungal genome and specifically within the aflatoxin pathway gene cluster (aflF, aflT, aflS, aflJ, aflL, aflX). Modulating the expression of these genes could be used for controlling aflatoxin contamination in crops such as corn, cotton, and peanut. Importantly, the expression of the regulatory gene aflS was significantly down-regulated during co-cultivation. We present a model showing a hypothesis of the regulatory mechanism of aflatoxin production suppression by AflS and AflR through B. megaterium co-cultivation.