Endophytic fungi are plant symbionts living asymptomatically within plant tissues. Neotyphodium spp., which are asexual vertically transmitted systemic fungal endophytes of cool-season grasses, are predicted to be plant mutualists. These endophytes increase host plant resistance to environmental stresses and/or increase the production of alkaloid-based herbivore deterrents. The ubiquity of this defense mutualism is unclear, and a variety of alternative mechanisms may explain the observed variation in infection rates, levels of deterrence, and the maintenance of asexual endophytes in grass populations. We found that grass-endophyte interactions are variable and ordered along an herbivory gradient in an undisturbed subarctic alpine ecosystem. Native grass populations in grazed sites had significantly greater frequency of Neotyphodium infection compared to ungrazed sites. Tillers from grazed sites had significantly higher hyphal densities compared to ungrazed sites. The ability of grass-Neotyphodium constituents to deter vertebrate herbivory in natural systems is thought to be rare. In grazed meadows, we showed that endophyte infection resulted in the deterrence of grazing by native vertebrate herbivores. However, the same herbivores did not distinguish between infected and uninfected grass harvested from ungrazed areas. These results demonstrate that the relationship between vertically transmitted endophytes and grasses in the alpine tundra vary greatly within populations. This may be based in part on defense mutualism and is consistent, under varying levels of herbivory, with the predictions of optimal defense theory.