Neotyphodium endophytes have not been reported within vascular tissue of grass hosts even though hyphae were observed in close proximity to vascular bundles. However, examination by light microscopy and transmission electron microscopy of a range of natural and artificially introduced associations involving Neotyphodium spp. has now shown that hyphae of these endophytes can colonize vascular tissue. In natural associations, hyphae were seldom present within vascular bundles and if present the number was low. Small vascular bundles lacking a bundle sheath were more likely to contain hyphae than large vascular bundles that were surrounded by a bundle sheath. Examination of a range of Lolium×hybridium (hybrid rye-grass) and L. multiflorum (annual rye-grass) plants, as well as F. arundinacea (tall fescue) and F. pratensis (meadow fescue) plants, that were inoculated as seedlings with either a strain of N. lolii or a strain of an interspecific hybrid Neotyphodium sp., revealed extensively colonised vascular bundles in four Lolium plants. Each of these plants was infected with the N. lolii strain and each had strong L. multiflorum characteristics. The most extensively colonised large vascular bundles were those first formed during leaf growth. Growth within these vascular bundles was continuous along their length. Hyphal extension and branching of hyphae within these vascular bundles ceased when leaf growth ceased. Grasses with extensively colonised vascular bundles were not noticeably stunted and formed inflorescences without external stromata.