Three Lolium perenne L. genotypes collected from different natural habitats were tested for the effects of their fungal endophyte Neotyphodium spp. on plant growth and seed yield. Half the clones of the originally infected plants were subjected to fungicide treatment to eradicate the endophytes. In an experiment, the clones were planted separately into pots and were either watered adequately or subjected to drought stress. In the genotype collected from a dry site, the endophyte infection reduced plant growth at an adequate water supply, but increased regrowth under drought. In the genotype from a periodically either flooded or dry site, endophyte infection significantly promoted the development of reproductive tillers and seed production (effects which are associated with adaptation to drought). In contrast, the genotype that originated from a wet site showed higher sensitivity to drought stress when endophyte infection was present. The results suggest that environmental conditions in the original habitat of the plants may influence the symbiotic interaction between plant and fungus, probably through natural selection. However, endophyte-induced increases in root dry weight and root/shoot ratio were recorded for all three genotypes. These features could be beneficial for plant persistence, especially on sites where water is the growth-limiting factor.