Streptomyces sp. (strain SS12) was isolated from terrestrial soil of western U.P., India and found to exhibit antimicrobial activity against various pathogenic bacteria and fungi. Optimization of physical and chemical parameters for antibiotic production in submerged fermentation resulted in 1.75 fold increase in production level in terms of inhibition zone diameter. The bioactive compound was found thermo stable (121?C for 15min.), pH stable (from 4-9) and soluble in water and ethyl acetate. The antifungal antibiotic was found to have comparable activity with nystatin and could completely inhibit the spore germination and degradation of mycelia in test fungus (Aspergillus sp.). On supplementing 0.5% of the crude culture filtrate containing bioactive compound resulted in 76% inhibition of growth in submerged culture in compare to control.