The present study investigated the ability of the non-pathogenic fungus Fusarium lateritium to either degrade or modify aromatic substances in olive-mill dry residue (DOR) and to reduce its phytotoxicity. The 80% reduction of ethylacetate extractable phenols in DOR colonized by the fungus for 20 weeks appeared to be due to polymerization reactions of phenol molecules as suggested by mass-balance ultrafiltration and size-exclusion chromatography experiments. Several lignin-modifying oxidases, including laccase, Mn-peroxidase and Mn-inhibited peroxidase were detected in F. lateritium solid-state cultures. Tests performed with tomato seedlings in soils containing 6% (w/w) sterilized non-inoculated DOR showed that the waste was highly phytotoxic. By contract, F. lateritium growth on DOR for 20 weeks led to a complete removal of the waste toxicity and to a higher shoot dry weight of tomato plants than that obtained in the absence of DOR.