Although ascomycetes occupy a vaster niche in soil than the well-studied basidiomycetes, they have received limited attention in studies related to bioremediation. In this study, the degradation of carbaryl by Xylaria sp. was studied in different culture conditions and its possible metabolic pathway was elucidated. In liquid culture, 99% of the added carbaryl was eliminated when cytochrome P450 (CYP450) was active, which was similar to the degradation rate of Pleurotus ostreatus, a fungus with strong bioremediation ability. Mn2+ is beneficial to the degradation of carbaryl. Compared to the 72.17% degradation rate in sterile soil, 59.0% carbaryl was eliminated in non-sterile soil, which suggested that Xylaria sp. BNL1 can resist microorganismal infection. Furthermore, the intracellular fractions containing laccase, CYP450, and carbaryl esterase efficiently degraded carbaryl. The presence of carbaryl metabolites suggested that Xylaria sp. BNL1 initiated its attack on carbaryl via carbaryl esterase to release α-naphthol, which was further degraded to 1,4-naphthoquinone and benzoic acid by CYP450 and laccase. Thus, our study highlights the potential of using Xylaria sp. for bioremediation.