<p><i>Trichoderma</i> includes several plant growth and health promoting species. However, information about combined plant growth modulation and biocontrol of plant parasitic nematodes is limited. In this work, the role of indole-3-acetic acid (IAA) produced by <i>T. atroviride</i> and released into the rhizosphere of tomato (<i>Lycopersicon esculentum</i> L.) in regulating plant growth and its effects on soil nematodes with different lifestyles (i.e., bacterivorous, fungivorous, and plant-parasitic nematodes) were investigated. Experiments with and without <i>T. atroviride</i> in soil without and with plants were performed. In soil without plants, <i>T. atroviride</i> increased the total number of soil nematodes by 53%, though no significant effects were observed for the any of the ecological guilds. Also, the presence of the plant caused an 86% increase in the total nematode populations compared to the control treatment without plants. In nematode infested agricultural soil, <i>T. atroviride</i> increased the content of salicylic acid (SA) in plant roots. In addition, the levels of IAA, which controls practically all developmental processes in plants, were also increased, while pure IAA reduced gall formation in tomato roots. In soil without plants, <i>T. atroviride</i> released 591.10 ng g^− 1 of IAA, corresponding to a 2-fold accumulation when compared with the levels found in non-inoculated soil. A positive correlation between the accumulation of IAA in the soil and SA in tomato roots was observed. In conclusion, our study revealed a possible new facet of the activity of IAA released by <i>T. atroviride</i> in the soil, modulating plant growth and reducing root gall formation during the process of plant-parasitic nematode infestation.</p>