Species that can germinate under low water potential are likely to have greater utility for fodder production and restoration in arid habitats. We investigated seed germination response of four native grass species (Panicum acuminatum, Panicum turgidum, Pennisetum divisum and Polypogon monspeliensis) to five osmotic potentials (0, −0.3, −0.6, −0.9 and −1.2 MPa) using polyethylene glycol‐6000 and two light treatments (0, 12 h light per day). All the studied species exhibited high germination (> 77%) at ψ = 0 MPa except P. turgidum (42%). Polypogon monspeliensis seeds did not show any significant reduction in germination from ψ = 0 to −0.3 MPa (90–83%), but all other species did, averaging from 75.8 to 60.5%. At ψ = −0.6 MPa seed germination was reduced to around 20%. Germination of most species was unaffected by light, but P. divisum seeds that germinated in darkness were more tolerant to water deficit. Reduction of water potential to −0.3 MPa inhibited the germination timing for P. acuminatum (ca 1.69 days difference to 50% germination [t50]), P. divisum (ca 1.56 day) and P. monspeliensis (ca 1.14 days). Germination of P. acuminatum and P. monspeliensis were similar after stressful exposure to all osmotic potentials, while for P. divisum there was reduced germination (85% at −0.6 MPa to 58% −1.2 MPa), indicating a dormancy induction. Tolerance to low water potentials, and response after release from these low potentials, indicates the species are adapted to survive in drier environments.