Over the past 20 yr much has been learned about a unique symbiotic interaction between fungal endophytes and grasses. The fungi (Clavicipitaceae, Ascomycota) grow intercellularly and systemically in aboveground plant parts. Vertically transmitted asexual endophytes forming asymptomatic infections of cool-season grasses have been repeatedly derived from sexual species that abort host inflorescences. The phylogenetic distribution of seed-transmitted endophytes is strongly suggestive of cocladogenesis with their hosts. Molecular evidence indicates that many seed-transmitted endophytes are interspecific hybrids. Superinfection may result in hyphal fusion and parasexual recombination. Most endophytes produce one or more alkaloid classes that likely play some role in defending the host plant against pests. Hybridization may have led to the proliferation of alkaloid-production genes among asexual endophytes, favoring hybrids. The ergot alkaloid ergovaline, lolitrems, and lolines are produced by only a single sexual species, Epichloë festucae, but they are common in seed-transmitted endophytes, suggesting that E. festucae contributed genes for their synthesis. Asexual hybrids may also be favored by the counteracting of the accumulation of deleterious mutations (Muller's rachet). Endophyte infection can provide other benefits, such as enhanced drought tolerance, photosynthetic rate, and growth. Estimates of infection frequency have revealed variable levels of infection with especially high prevalence in the subfamily Pooideae. Longitudinal studies suggest that the prevalence of seed-transmitted endophytes can increase rapidly over time. In field experiments, infected tall fescue suppressed other grasses and forbs relative to uninfected fescue and supported lower consumer populations. Unlike other widespread plant/microbial symbioses based on the acquisition of mineral resources, grass/endophyte associations are based primarily on protection of the host from biotic and abiotic stresses.