Arbuscular mycorrhizal fungus (AMF) is widely viewed as an ecosystem engineer to help plants adapt to adverse environments. However, a majority of the previous studies regarding AMF's eco‐physiological effects are mutually inconsistent. To clarify this fundamental issue, we conducted an experiment focused on wheat (Triticum aestivum L.) plants with or without AMF (Funneliformis mosseae) inoculation. Two water regimes (80% and 40% field water capacity, FWC80 (CK) and FWC40 (drought stress) and four planting densities (6 or 12 plants per pot as low densities, 24 or 48 plants per pot as high densities) were designed. AMF inoculation did not show significant effects on shoot biomass, grain yield, and water use efficiency (WUE) under the low densities, regardless of water regimes. However, under the high densities, AMF inoculation significantly decreased shoot biomass, grain yield and WUE in FWC80, while it significantly increased these parameters in FWC40, showing density and/or moisture‐dependent effects of AMF on wheat performance. In FWC40, the relationships between reproductive biomass (y‐axis) vs. vegetative biomass (x‐axis) (R‐V), and between grain biomass (y‐axis, sink) vs. leaf biomass (x‐axis, source) fell into a typical allometric pattern (α > 1, P < 0.001), and the AMF inoculation significantly increased the values of α. Yet in FWC80, they were in an isometric pattern (α ≈ 1, P < 0.001) and AMF addition had no significant effects on α. Similarly, AMF did not significantly change the isometric relationship between leaf biomass (i.e., metabolic rate) and shoot biomass (body size) in FWC80, while it significantly decreased the α of allometric relationship between both of them in FWC40 (α > 1, P < 0.001). We therefore, sketched a generalized model of R‐V and sink‐source relationships as affected by AMF, in which AMF inoculation might enhance the capabilities of sink acquisition and utilization under drought stress, while having no significant effect under the well watered conditions. Our findings demonstrate dual density‐ and moisture‐dependent effects of AMF on plant development and provide new insights into current ecological applications of AMF as an ecosystem engineer.