We assessed how Neotyphodium infection influenced the biomass production and growth of Arizona fescue (Festuca arizonica Vasey), a dominant understory grass in Ponderosa pine (Pinus ponderosa) forests of the southwest USA, by growing potted infected (E+) and uninfected (E-) plants under a high and a low water availability regime for 87 days. We measured growth analysis parameters, leaf net photosynthesis (P-n) chlorophyll fluorescence parameters, conductance to water vapor (g(1)) and water potential (Psi), to provide explanations for differences in biomass production under these treatments. Under high water availability, E- plants produced more biomass and had greater relative growth rates (RGR; rate of biomass gain per biomass); higher RGR of E- plants was correlated with higher P-n as well as production of less dense, presumably thinner leaves, which provided more leaf area per leaf biomass, and greater LAR (leaf area ratio; leaf area per total plant biomass). Under low water availability, E+ plants produced more aboveground biomass and had greater RGR; higher RGR of E+ plants was correlated with higher net assimilation rates, as well as production of less dense leaves and greater LAR. Infected plants tended to have lower midday P-n and g(1) in both water availability regimes. Lower P-n in E+ plants appeared primarily due to stomatal, rather than biochemical, limitations to photosynthesis. When a more severe water stress was imposed in the low water availability treatment over the last 61 days of the experiment, E+ plants tended to have higher midday P-n and g(1). Infected plants also tended to have less negative leaf Psi regardless of water availability regime. Lower g(1) and transpirational losses of E+ plants probably conserved soil moisture, such that when a more severe water stress was subsequently imposed, higher soil moisture availability allowed E+ plants to maintain higher P-n and g(1). Neotyphodium infection appears beneficial to Arizona fescue performance under low water availability and detrimental under ample water availability. (C) 2002 Elsevier Science B.V. All rights reserved.