The role of arbuscular mycorrhizal fungi (AMF) in enhancing plant tolerance to drought is well known. However, the degree to which AMF-plant symbioses are locally adapted has been suggested but is less well understood, especially at small spatial scales. Here, we examined the effects of two arbuscular mycorrhizal fungal communities on drought tolerance of Themeda triandra, a native African perennial bunchgrass. In our study area, mound building activities of Odontotermes sp. termites produce heterogeneous habitat, particularly with respect to water availability, and do so over small spatial scales (<50 m). Thus, plants and their AMF symbionts may experience identical climatic conditions but very different edaphic conditions. We hypothesized that AMF from off-mound areas, where plants experience drought more intensely than on termite mounds, would confer greater protection from drought conditions than AMF from termite mound soils. To test this, we conducted a greenhouse experiment in which we grew plants in soils that we inoculated with fungi from on or off termite mounds, or with a sterilized control inoculum. Our results reveal habitat-specific AMF effects on host stomatal functioning and growth. Contrary to our expectations, drought stressed grasses inoculated with AMF from termite mounds closed stomata less, and produced 60% more leaves than those inoculated with off-mound AMF, thus exhibiting higher levels of tolerance. Mound-inoculated plants that were drought stressed also produced more than twice as many leaves as non-inoculated plants. Longer-term productivity measurements indicate both on- and off-mound inoculated plants were able to recover to a greater extent than non-inoculated plants, indicating that AMF associations in general help plants recover from drought. These findings highlight the important role that AMF play in mitigating drought stress and indicate that AMF affect how plants experience drought in a small scale, habitat-specific manner.