Cereal grains are the most important food source for humans. As the global population continues to grow exponentially, the need for the enhanced yield and minimal loss of agricultural crops, mainly cereal grains, is increasing. In general, harvested grains are stored for specific time periods to guarantee their continuous supply throughout the year. During storage, economic losses due to reduction in quality and quantity of grains can become very significant. Grain loss is usually the result of its deterioration due to fungal contamination that can occur from preharvest to postharvest stages. The deleterious fungi can be classified based on predominance at different stages of crop growth and harvest that are affected by environmental factors such as water activity (a_w) and eco-physiological requirements. These fungi include species such as those belonging to the genera Aspergillus and Penicillium that can produce mycotoxins harmful to animals and humans. The grain type and condition, environment, and biological factors can also influence the occurrence and predominance of mycotoxigenic fungi in stored grains. The main environmental factors influencing grain fungi and mycotoxins are temperature and a_w. This review discusses the effects of temperature and a_w on fungal growth and mycotoxin production in stored grains. The focus is on the occurrence and optimum and minimum growth requirements for grain fungi and mycotoxin production. The environmental influence on aflatoxin production and hypothesized mechanisms of its molecular suppression in response to environmental changes are also discussed. In addition, the use of controlled or modified atmosphere as an environmentally safe alternative to harmful agricultural chemicals is discussed and recommended future research issues are highlighted.