Technical Abstract: Native grasses and shrubs in arid southwestern rangelands are more extensively colonized by dark septate endophytic fungi than by traditional mycorrhizal fungi. A histochemical method was developed that revealed active internal structures that have not been observed using conventional protocol for fungal analysis. These fungi nonpathogenically and totally colonize all sieve elements, cortical and epidermal cells. They grow inter and intracellulary forming an intimate integrated association with all root cells. Their internal morphology is often atypical of commonly recognized symbiotic or pathogenic fungal colonization. These endophytes accumulate and disperse large quantities of lipids through the root. They form a mucilage layer on the root surface which protects the root and maintains hydraulic continuity with dry soil. Our results suggest that these fungi function as carbon managers and enhance nutrient and water uptake in arid ecosystems.