I have a sneaking suspicion that I may have a fungal infection in my lawn. The soil is clay and thus doesn't drain well and I can see what looks like mold growing on the soil as well. Is there a natural way to deal with this or do I use fungicides?
Personally, I would NEVER, EVER use fungicide for any reason (except OMRI/organic-approved copper sprays on fruittrees)- especially on something like an unknown fungus on the lawn! You might even have a bunch of delicious gourmet mushrooms getting ready to begin fruiting for you right in your own yard. A friend of mine had the same "problem"- I told him not to use poison- and he got a bunch of delicious shaggy mane mushrooms in a nearby area of his lawn.
What does the "fungus" look like? Is it a white, moldy crust? Or is it turning the grass a reddish brown? What's the soil and weather like there? Where do you live? Some photos, more info or a location could possibly help in in identifying your problem.
That fungus is probably breaking down organic material in the lawn, maybe the layer of thatch. After the fungus does its job, it will leave behind nutrients that will be available to the lawn. Knowing what kind of fungus you have growing will make your decisions easier. Fungus is perfectly natural, and quite beneficial. If they're toadstools, they might even be edible(but be very, very sure on what they are before you eat them).
USDA Hardiness Zone 9a
Subtropical/temperate, Average annual rainfall of 61.94", hot and humid!
I agree with Allan, the fungus is there because the environment there needs it. You could use a chemical or a natural fungicide but then the environment in that area would still have a need for that particular organism. If you can just let nature take it's course it will probably eventually go away when it's job is done.
Perhaps this area needs something besides a monoculture of grass. Could you turn that area into a flower or vegetable bed? Or a combination of both? You mentioned that the area is clay. Roses, apples, crab apples are just some of the plants that like clay at thier feet.