Three perennial ryegrass clones infected and uninfected with Neotyphodium lolii (formerly Acremonium lolii) were studied to determine the impact of this endophytic fungus on plant growth and physiology under stress conditions. Plants were grown under controlled environmental conditions for 10 weeks and were subjected to: i) no stress (12 mM of N; no limiting water supply); ii) N deficiency; or iii) drought stress. In the absence of stress, infected and non-infected plants of all clones showed similar growth rates. Under N deficiency (2.33 mM), infected plants had 27% more tillers and 15% less dead leaves than uninfected plants, and they maintained their photosynthetic level. During drought stress (0.7 MPa), the osmotic potential of the infected plants was 13% lower than that of uninfected plants and their tiller number was 10% greater than that of non-infected plants at the end of the drought stress period. Thus, in the three clones studied, the infection results in increased tolerance of host plants to abiotic stress especially as a result of better tillering.