The herbicide propanil has long been used in rice production in southern Brazil. Bacteria isolated from contaminated soils in Massaranduba, Santa Catarina, Brazil, were found to be able to grow in the presence of propanil, using this compound as a carbon source. Thirty strains were identified as Pseudomonas (86.7%), Serratia (10.0%), and Acinetobacter (3.3%), based on phylogenetic analysis of 16S rDNA. Little genetic diversity was found within species, more than 95% homology, suggesting that there is selective pressure to metabolize propanil in the microbial community. Two strains of Pseudomonas (AF7 and AF1) were selected in bioreactor containing chemotactic growth medium, with the highest degradation activity of propanil exhibited by strain AF7, followed by AF1 (60 and 40%, respectively). These strains when encapsulated in alginate exhibited a high survival rate and were able to colonize the rice root surfaces. Inoculation with Pseudomonas strains AF7 and AF1 significantly improved the plant height of rice. Most of the Pseudomonas strains produced indoleacetic acid, soluble mineral phosphate, and fixed nitrogen. These bacterial strains could potentially be used for the bioremediation of propanil-contaminated soils and the promotion of plant growth.