To isolate Bacillus velezensis mutants with improved antifungal activity for use in the biological control of phytopathogenic fungi, wild-type Bacillus velezensis KRF-001 producing iturin, surfactin, and fengycin was irradiated by ultraviolet (UV) rays. The in vitro and in vivo antifungal activities of UV mutants and characterization of the cyclic lipopeptides produced by a selected mutant were examined. A mutant strain yielding high levels of iturin showed over 2-fold higher antifungal activity than the wild-type against Fusarium oxysporum. A potent suppressive effect of the mutant was also observed on spore germination of Botrytis cinerea, the causative agent of cucumber gray mold, at different butanol extract concentrations. Further analysis of the mutant by real-time PCR and high-performance liquid chromatography revealed increased expression of iturin and surfactin biosynthesis genes as well as enhanced production of iturin and surfactin metabolites. However, the amounts of fengycin obtained from the mutant strain BSM54 were significantly lesser than those of iturin and surfactin. Particularly, iturin A production by the mutant was 3.5-fold higher than that of the wild-type, suggesting that the higher antifungal activity of the mutant against F. oxysporum resulted from the increased expression of biosynthesis genes associated with iturin production. The commercial greenhouse experiment using soil naturally infested with Sclerotinia sclerotiorum (sclerotinia rot) and F. oxysporum (fusarium wilt) showed that the mutant strain reduced sclerotinia rot and fusarium wilt diseases (P = 0.05) more effectively than the wild-type and commercially available product Cillus® in Korea. These results suggest that the mutant with high iturin yield is a potential candidate for the development of a biological control agent in agriculture.