Fusarium xiangyunensis sp. nov., isolated from hot-spring waterlogged soil in China, which is an endoparasitic fungus of nematodes, is described and illustrated. Evidence for the new species is provided by morphology and phylogenetic analyses of combined ITS, EF-1α and RPB1 sequence data. Phylogenetic analyses showed that F. xiangyunensis clustered with those species belonging to the F. solani species complex and grouped together with F. witzenhausenense. This species differs from F. witzenhausenense in habitat (parasitic on Hibiscus sp.), conidia and chlamydospores. Furthermore, the nematicidal activity of its microconidia was determined and causes infection and death of nematodes in both sterile water and solid medium.