Technical Abstract: This paper is an invited review paper to be presented at the Southern Pasture Improvement Conference, April, 1998, Lafayette, LA, discussing the use of grass endophytes for enhanced performance in turf and pasture situations. The emphasis in this paper is on drought tolerance, especially as it relates to modifying the genetics of the fungus for drought improvements in tall fescue, a very valuable grass for the southern United States. Most grasses are associated with fungi, and in this case the association is internal among the foliage parts of the plant. These associations are not pathogenic, and in most associations, both the fungus and grass are mutually benefitted. This type association is referred to as mutualistic. Indeed, the presence of the fungus confers several ecological benefits such as increased growth under grazing pressures, drought tolerance, insect and disease resistance, reduced feeding by animals, as well as competition with other grasses. Most of these beneficial characteristics have only been observed, the chemical and detailed basis for these enhanced traits have not been determined.