Defensive mutualism is widely accepted as providing the best framework for understanding how seed-transmitted, alkaloid producing fungal endophytes of grasses are maintained in many host populations. Here, we first briefly review current knowledge of bioactive alkaloids produced by systemic grass-endophytes. New findings suggest that chemotypic diversity of the endophyte-grass symbiotum is far more complex, involving multifaceted signaling and chemical cross-talk between endophyte and host cells (e.g., reactive oxygen species and antioxidants) or between plants, herbivores, and their natural enemies (e.g., volatile organic compounds, and salicylic acid and jasmonic acid pathways). Accumulating evidence also suggests that the tight relationship between the systemic endophyte and the host grass can lead to the loss of grass traits when the lost functions, such as plant defense to herbivores, are compensated for by an interactive endophytic fungal partner. Furthermore, chemotypic diversity of a symbiotum appears to depend on the endophyte and the host plant life histories, as well as on fungal and plant genotypes, abiotic and biotic environmental conditions, and their interactions. Thus, joint approaches of (bio)chemists, molecular biologists, plant physiologists, evolutionary biologists, and ecologists are urgently needed to fully understand the endophyte-grass symbiosis, its coevolutionary history, and ecological importance. We propose that endophyte-grass symbiosis provides an excellent model to study microbially mediated multirophic interactions from molecular mechanisms to ecology.