AbstractImprovement in drought tolerance is an important component of forage grass breeding. To assess the potential of selecting drought tolerant genotypes of orchardgrass, a polycross population was created in 2010 and evaluated in the field under normal and drought stress conditions during 2011–2013. Drought stress reduced performance in forage yield, growth characteristics, and most of the physiological traits measured, but increased carotenoid content, proline content, and the chlorophyll a/b ratio. High estimates of narrow‐sense heritability for chlorophyll and carotenoid content, as well as forage yield components, indicated that phenotypic selection would be successful in achieving genetic progress. Indirect selection to improve forage yield under drought stress conditions was efficient through selecting for chlorophyll a, chlorophyll b, total chlorophyll and carotenoid content. These physiological traits were also significantly associated with drought tolerance index. Overall, families 5, 7, 8, 13, 14 and 24 with high stress tolerance index values and high forage yield under both water conditions were identified as suitable families for breeding drought adaptive varieties.