Dairy wastewater is increasingly becoming an environmental concern. There is a widespread interest in the use of beta-galactosidase (EC 3.2.1.23) to hydrolyze lactose in milk and dairy products which aid in improving their functional and digestive properties. An attempt was made to isolate fungi from dairy effluent using standard culture techniques. Physicochemical characteristics and proximate composition of the dairy effluent was analyzed. The fungi isolated were subsequently screened using Ortho-nitrophenol-beta-D-galactopyranoside (ONPG) discs method for potential to produce beta-galactosidase. The isolate showing beta-galactosidase activity was selected and used to produce beta-galactosidase under submerged fermentation using the dairy effluent as a substrate. A total of nine (9) fungi were isolated from the dairy effluent belonging to the Genera Aspergillus, Rhizopus, Rhizomucor and Penicillium with Aspergillus having the highest frequency of occurrence (67%). Physicochemical analyses of the raw dairy effluent revealed the effluent had a pH of 6.8 (±0.20), electrical conductivity of 645μs/cm (±1.00) and total dissolved solids of 324mg/L (±2.00). The dissolved oxygen and biochemical oxygen demand were 200mg/L (±1.00) and 100mg/L (±1.70) respectively while the nitrates, phosphates and sulfates were 1.4x10-3% (±1.0x 10-4), 54.94mg/L (±0.79) and 13.66mg/L (±0.61) respectively. The proximate composition of the dairy effluent revealed ash, lipid, protein and carbohydrate contents were 0.15% (±0.01), 5.85% (±0.02), 0.88% (±0.01) and 13.13% (±0.00) respectively. Only Rhizopus species showed beta-galactosidase activity and was used to produce extracellular beta-galactosidase. A maximum beta-galactosidase activity of 4.65U/mL (±0.02) was obtained with the selected Rhizopus species. It was concluded that Rhizopus species could be a potential fungal strain for beta-galactosidase production using the dairy effluent as substrate