It colonizes living plants as an endophyte, digests material in soil as a saprophyte and is also known as a parasite of other fungi and of nematodes.

[2] It produces a wide range of volatile organic compounds which are toxic to organisms including other fungi, bacteria, and insects, and is of interest as a biological pest control agent.

Clonostachys rosea protects plants against Botrytis cinerea ("grey mold") by suppressing spore production.

[4] Nematodes are infected by C. rosea when the fungus' conidia attach to their cuticle and germinate, going on to produce germ tubes which penetrate the host's body and kill it.

[3] In 2008 an isolate of Clonostachys rosea (NRRL 50072) was identified as producing a series of volatile compounds that are similar to some existing fuels, including diesel.