Sheath blight is one of the most important and intractable diseases of rice (Oryza sativa) where limited control has been achieved using traditional approaches. Quantitative inheritance, extraneous traits, and environmental factors confound genetic analysis of host resistance. A method was developed to isolate and utilize a phytotoxin from Rhizoctonia solani to investigate the genetics of sheath blight susceptibility. Infiltration of the toxin preparation into plant leaves induced necrosis in rice, maize, and tomato. Using 17 rice cultivars known to vary in sheath blight resistance, genotypes were identified that were sensitive (tox-S) and insensitive (tox-I) to the toxin, and a correlation (r = 0.66) between toxin sensitivity and disease susceptibility was observed. Given the broad host range of R. solani, genotypes of host species may be both tox-S and tox-I. A total of 154 F2 progeny from a cross between Cypress (tox-S) and Jasmine 85 (tox-I) segregated in a 9:7 ratio for tox-S/tox-I, indicating an epistatic interaction between two genes controls sensitivity to the toxin in rice. This work provides the means to genetically map toxin sensitivity genes and eliminate susceptible genotypes when developing sheath blight-resistant rice cultivars.