A novel strain of Chromobacterium sp. NIIST (MTCC 5522) producing high level of purple blue bioactive compound violacein was isolated from clay mine acidic sediment. During 24 h aerobic incubation in modified Luria Bertani medium, around 0.6 g crude violacein was produced per gram of dry weight biomass. An inexpensive method for preparing crystalline, pure violacein from crude pigment was developed (12.8 mg violacein/L) and the pure compound was characterized by different spectrometric methods. The violacein prepared was found effective against a number of plant and human pathogenic fungi and yeast species such as Cryptococcus gastricus, Trichophyton rubrum, Fusarium oxysporum, Rhizoctonia solani, Aspergillus flavus, Penicillium expansum, and Candida albicans. The best activity was recorded against Trichophyton rubrum (2 μg/ml), a human pathogen responsible for causing athlete’s foot infection. This is the first report of antifungal activity of purified violacein against pathogenic fungi and yeast.