Parental and progeny isolates of the endophytic fungus Epichloë festucae were tested for compatibility with five grass species: Lolium perenne, Festuca arundinacea, F. longifolia, F. pratensis, and F. rubra subsp. rubra. One parental and some progeny isolates adversely affected the growth of plants, causing increased mortality of inoculated seedlings, stunted growth and chlorotic leaf symptoms. Growth of hyphae from surface-sterilized leaf sheaths and blades was more vigorous and concentrated from stunted than from symptomless plants. In addition, the growth of isolates was influenced by the host species, whereby estimates of hyphal concentration were consistently highest in meadow fescue associations and lowest in tall fescue associations. Light microscopic and transmission electron microscopic examination of stunted plants indicated no changes in host cells. Intercellular hyphae were observed within vascular bundles of leaf blades and sheaths of many of the endophyte–grass associations. The frequency of infected vascular bundles and the concentration of hyphae within them was highest in plants infected with the stunting parental isolate and lowest in plants infected with the symptomless parental isolate. Hyphae within vascular bundles were typically in close contact with sieve-tube elements and appeared to be functioning as powerful sinks, diverting assimilates and restricting growth.