Piriformospora indica is one of the cultivable root-colonising endophytic fungi of the order Sebacinales, which efficiently promote plant growth, uptake of nutrients, and resistance to biotic and abiotic stresses. The aim of this study was to evaluate the effect of P. indica on millet (Panicum miliaceum L.) under water-stress conditions. Two field experiments were carried out in a factorial arrangement at Bu-Ali Sina University of Hamedan, Iran, during 2014 and 2015. The first factor was three levels of water-deficit stress, with irrigation after 60 mm (well-watered), 90 mm (mild stress) and 120 mm (severe stress) evaporation from pan class A. The second factor was two levels of fungus P. indica: inoculated and uninoculated. Results showed that water-deficit stress significantly decreased grain yield and yield components. Colonisation by P. indica significantly increased number of panicles per plant, number of grains per panicle and 1000-grain weight, regardless of water supply. Inoculation with P. indica increased grain yield by 11.4% (year 1) and 19.72% (year 2) in well-watered conditions and by 35.34% (year 1) and 32.59% (year 2) under drought stress, compared with uninoculated plants. Maximum flag-leaf area (21.71 cm²) was achieved with well-watered conditions. Severe water stress decreased flag-leaf area by 53.36%. Flag-leaf area was increased by 18.64% by fungus inoculation compared with the uninoculated control. Under drought conditions, inoculation with P. indica increased plant height by 27.07% and panicle length by 9.61%. Severe water stress caused a significant decrease in grain phosphorus concentration, by 42.42%, compared with the well-watered treatment. By contrast, grain nitrogen and protein contents were increased about 30.23% and 30.18%, respectively, with severe water stress. Inoculation with P. indica increased grain phosphorus by 24.22%, nitrogen by 7.47% and protein content by 7.54% compared with control. Water stress reduced leaf chlorophyll and carotenoid concentrations, whereas P. indica inoculation enhanced chlorophyll concentrations by 27.18% under severe water stress. The results indicated the positive effect of P. indica on yield and physiological traits of millet in both well-watered and water-stressed conditions.