Abstract: Net assimilation rate, transpiration rate and water use efficiency of endophyte-infected (EI) and endophyte-free (EF) populations of Lolium perenne were determined under drought stress so as to investigate the effect of endophyte infection on the host plant. The physiological characteristics of L. perenne populations depended much on drought stress levels, and the effects of endophyte infection were significant under prolonged severe stress. 1) At the late stage of severe drought stress, the EI populations assimilated CO2 at a significantly higher rate than the EF populations. After rewatering, however, there were no significant differences between the two populations 2)Transpiration rate of the populations was more affected by drought stress than endophyte infection. 3) Only at the later stage of severe drought stress, was the water use efficiency of the EI populations higher than that of the EF populations.