A wood-decay or xylophagous fungus is any species of fungus that digests moist wood, causing it to rot. Some species of wood-decay fungi attack dead wood, such as brown rot, and some, such as Armillaria (honey fungus), are parasitic and colonize living trees. Excessive moisture above the fibre saturation point in wood is required for fungal colonization and proliferation. In nature, this process causes the breakdown of complex molecules and leads to the return of nutrients to the soil. Wood-decay fungi consume wood in various ways; for example, some attack the carbohydrates in wood, and some others decay lignin. The rate of decay of wooden materials in various climates can be estimated by empirical models.

Wood-decay fungi can be classified according to the type of decay that they cause. The best-known types are brown rot, soft rot, and white rot. Each produce different enzymes, can degrade different plant materials, and can colonise different environmental niches. Brown rot and soft rot both digest a tree's cellulose and hemicellulose but not its lignin; white rot digests lignin as well. The residual products of decomposition from fungal action have variable pH, solubility and redox potentials. Over time this residue becomes incorporated in the soil and sediment so can have a noticeable effect on the environment of that area.

Wood decay fungi are considered key species in the forest ecosystems because the process of decomposing dead wood creates new habitats for other species, helps in the nutrient recycling, participate in the energy transportation and transformation and provides food to other species. They are also used as indicator species for conservation projects.

Wood decay fungi are dependent on wood. Due to forestry, cutting trees and removal of decaying wood, many species are classified as threatened.