In the last years, there is a growing demand for plants used in traditional medicine. Licorice (Glycyrrhiza glabra) contains different phytocompounds, that have demonstrated various pharmacological activities. The endophytic fungus, Piriformospora indica, has been reported to enhance the growth of host plants and allow them to survive under abiotic and biotic stress. This study was undertaken to investigate the effect of P. indica on drought stress tolerance of G. glabra. The experiment was conducted in a completely randomized design with three fungus treatments (spore, mycelium and non-inoculated), and two levels of drought treatments (Filed capacity and 50% F.C.) in three replications. Four weeks after stress induction (six weeks after inoculation), samples were collected and, growth and morpho-physiological traits were measured. The drought stress decreased shoot, and root dry weight, chlorophyll content, potassium, and phosphorus content and increased electrolyte leakage, H2O2, proline, and Na; but, the interaction of licorice with P. indica resulted in an overall increase in plant biomass. The photosynthetic pigment (Chl a, Chl b, total Chl, and carotenoid), proline, K, and P were significantly higher for inoculated seedling. Furthermore, the inoculated seedling had lower H2O2, electrolyte leakage, and Na content. In conclusion, our findings indicated that the symbiotic association of endophytic fungus P. indica had a positive effect on growth and morpho- physiological traits and also can help the plants to tolerate drought stress. These results are opening up a window of opportunity for application of this fungus in desert agriculture of medicinal plants.