Peanut (Arachis hypogaea L.) is an important cash and oil seed crop, mostly distributed in arid and semi‐arid areas. In recent years, due to the influence of atmospheric circulation anomalies and other factors, drought has become frequent and increasingly serious in China. This has posed serious challenges to peanut production. The objective of this study was to investigate the potential of the endophytic fungus Piriformospora indica to form a symbiotic relationship with peanut plants and to evaluate the drought tolerance of P. indica‐colonized peanut plants subjected to a simulated drought stress treatment using 20% polyethylene glycol 6000 (PEG6000). The endophytic fungus P. indica affected the physiological characteristics of the host plant by colonizing the plant roots, thereby conferring greater resistance to drought stress. This fungus strongly colonized the roots of peanuts and was found to enhance root activity after 24 h of P. indica colonization under PEG6000. Catalase (CAT) and peroxidase (POD) activities were increased at 24 h in peanut leaves colonized with P. indica. Expression of drought‐related genes, such as AhNCED1, AhP5CS, and DREB2A was upregulated at 24 h of P. indica colonization. In addition, after PEG6000 treatment, proline, soluble protein, and abscisic acid (ABA) concentrations in plants were increased, while the accumulation of malondialdehyde (MDA), and hydrogen peroxide (H2O2) was decreased in P. indica colonized peanut. In conclusion, P. indica mediated peanut plant protection against the detrimental effects of drought resulted from enhanced antioxidant enzyme activities, and the upregulated expression of drought‐related genes for lower membrane damage.