Both bacterial and fungal endophytes exhibited one or more plant growth-promoting (PGP) traits. Among these strains, the Paenibacillus peoriae SYbr421 strain demonstrated the greatest activity in the direct biotransformation of tuber powder from D. nipponica into diosgenin. Endophytes play crucial roles in shaping active metabolites within plants, significantly influencing both the quality and yield of host plants. Dioscorea nipponica Makino accumulates abundant steroidal saponins, which can be hydrolyzed to produce diosgenin. However, our understanding of the associated endophytes and their contributions to plant growth and diosgenin production is limited. The present study aimed to assess the PGP ability and potential of diosgenin biotransformation by endophytes isolates associated with D. nipponica for the efficient improvement of plant growth and development of a clean and effective approach for producing the valuable drug diosgenin. Eighteen bacterial endophytes were classified into six genera through sequencing and phylogenetic analysis of the 16S rDNA gene. Similarly, 12 fungal endophytes were categorized into 5 genera based on sequencing and phylogenetic analysis of the ITS rDNA gene. Pure culture experiments revealed that 30 isolated endophytic strains exhibited one or more PGP traits, such as nitrogen fixation, phosphate solubilization, siderophore synthesis, and IAA production. One strain of endophytic bacteria, P. peoriae SYbr421, effectively directly biotransformed the saponin components in D. nipponica. Moreover, a high yield of diosgenin (3.50%) was obtained at an inoculum size of 4% after 6 days of fermentation. Thus, SYbr421 could be used for a cleaner and more eco-friendly diosgenin production process. In addition, based on the assessment of growth-promoting isolates and seed germination results, the strains SYbr421, SYfr1321, and SYfl221 were selected for greenhouse experiments. The results revealed that the inoculation of these promising isolates significantly increased the plant height and fresh weight of the leaves and roots compared to the control plants. These findings underscore the importance of preparing PGP bioinoculants from selected isolates as an additional option for sustainable diosgenin production.