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A number of fungi have been reported for their ability to make symbiotic relationship with plant roots. This mutual interaction helps fungi produce important metabolites in the rhizospheric region supporting plants for better growth and survival. These biologically important fungal metabolites, especially of antibiotic potential, can be isolated and characterized in vitro for further applications. PAAN135, a fungus isolated from rhizosphere of a perennial grass, Panicum antidotale, from a nearby desert Cholistan exhibited antibacterial characteristics against six indicator strains. Culture filtrate of the fungal isolate was extracted with different solvents to isolate the potential antibiotic compound. The antibiotic-like component produced by the fungus was separated in n-Butanol fraction. It was purified using Column Chromatography and identified as a diketopiperazine, cyclo-L-prolylglycine (cPG), after structural elucidation through spectroscopic studies. The purified compound showed very good antibacterial activity against the six indicator strains used in the present study. The diketopiperazine cPG has been reported in the literature as a neuroprotective and memory facilitating agent. After molecular characterization and phylogenetic analysis PAAN135 fungus could only be classified up to the order level Saccharomycetales. Thus the fungus was placed as a new species under unclassified Saccharomycetales under the phylum Ascomycota and named as Saccharomycetales sp. PAAN135. To our knowledge isolation of the cyclo-L-prolylglycine as a potential antibacterial compound from a new fungal species Saccharomycetales sp. PAAN135 from a Cholistan desert rhizosphere is being reported for the first time.