Epichloë endophytes are fungal symbionts of grasses that span a continuum including asexual mutualists that are vertically transmitted, obligately sexual pathogens that are horizontally transmitted, and mixed-strategy symbionts with both mutualistic and pathogenic capabilities. Here we show that processes of genome evolution differ markedly for the different symbiont types. Genetic and phylogenetic analysis was conducted of a broad taxonomic, ecological and geographical sample of sexual and asexual isolates, in which were identified and sequenced alleles of genes for β-tubulin (tub2) and translation elongation factor 1-α (tef1), and microsatellite alleles were identified by length polymorphisms. The majority of asexual isolates had two or three alleles of most loci, but every sexual isolate had only single alleles for each locus. Phylogenetic analysis of tub2 and tef1 indicated that in all instances of multiple alleles in an isolate, the alleles were derived from different sexual species. It is concluded that, whereas horizontally transmissible species had haploid genomes and speciation occurred cladistically, most of the strictly seedborne mutualists were interspecific hybrids with heteroploid (aneuploid or polyploid) genomes. Furthermore, the phylogenetic evidence indicated that, in at least some instances, hybridization followed rather than caused evolution of the strictly seedborne habit. Therefore, the abundance of hybrid species among grass endophytes, and their prevalence in many host populations suggests a selective advantage of hybridization for the mutualistic endophytes.