Abstract: Biological control is a sustainable pest management strategy utilizing beneficial microorganisms or their bioactive metabolites to suppress the occurrence and spread of plant diseases or to promote plant growth. These microbial-derived bioactive metabolites demonstrate significant antimicrobial, insecticidal, and growth-regulating activities, and are commonly used as agricultural antibiotics, microbial-derived growth regulators, and plant immunity inducers. These compounds have become a major class of novel biopesticides widely applied in China. Advances in genomics, bioinformatics, and molecular biology have further positioned the biosynthesis of these microbial-derived bioactive compounds as a critical avenue for green biopesticide development. This review provides a systematic summarize of the mechanisms by which biocontrol microorganisms suppress plant diseases through competition, antagonism, induction of systemic plants resistance, and recruitment of beneficial microorganisms. It also discusses the major types of bioactive compounds produced by biocontrol bacteria (such as Bacillus, Pseudomonas, and Actinomycetes) and biocontrol fungi (such as Trichoderma), with a particular focus on the biosynthetic pathways of representative bioactive substances, including polyketides, non-ribosomal peptides, phenazines, and other types of compounds. In addition, the current challenges and issues in the production and application of microbial-derived bioactive compounds in China are analyzed, offering insights for the development of a new generation of green and efficient biopesticides.