Tall fescue is an important cool-season perennial forage grass that forms mutualistic symbioses with fungal endophytes. Physiological, biochemical and transcriptional comparisons were made between two tall fescue genotypes with contrasting drought tolerance (tolerant, T400, and sensitive, S279), either with or without endophyte (Epichloë coenophiala). Drought stress was applied by withholding watering until plants reached mild, moderate and severe stresses. Physiological characterization showed that T400 had narrower, thicker leaves, and lower leaf conductance under well-watered conditions, compared to S279. After severe drought and recovery, endophytic T400 had greater shoot and root biomass than other plant types. Under drought, leaf osmotic pressure increased much more in T400 than S279, consistent with accumulation of metabolites/osmolytes, especially proline. Gene Ontology enrichment analysis indicated that T400 had more active organic acid metabolism than S279 under drought, and implicated the role of endophyte in stimulating protein metabolism. Transcription factor (TF) binding motif enrichment analysis of the promoters of drought up-regulated genes point to important regulatory roles for bZIPs and bHLHs in controlling such genes, with the core binding motif (C/G)ACGTG being identified. A much larger variance was observed in TF binding motif enrichment in the promoters of drought down-regulated genes.