In recent years, the application of arbuscular mycorrhizal fungi (AMF) has been considered to be an important strategy for improving crop yield and quality. In the present study, a factorial experiment based on a complete randomized design with two factors was performed to investigate the effect of AMF and water stress on the essential oil (EO) composition, antioxidant activity, and physiological and morphological characteristics of rose-scented geranium (Pelargonium graveolens L.). The factors included AMF inoculation (Rhizophagus intraradices, Funneliformis mosseae, and a mixture of both species) and irrigation levels [well-watered (WW), moderate drought stress (MDS), and severe drought stress (SDS)]. The main EO constituents were citronellol (31–37%) and geraniol (9–14%) in all treatments. Under water-stress conditions, some constituents increased, such as geraniol and geranyl formate, whereas others decreased, such as linalool, menthone and rose oxide. Overall, the highest amount of citronellol (37.3%) and geraniol (14.8%) was obtained in the plants inoculated with F. mosseae and R. intraradices under WW and MDS conditions, respectively. Antioxidant activity, total flavonoids, and phenolics were increased because of AMF inoculation, whereas a different trend was observed for the phenolic and flavonoid contents under water-stress conditions. Furthermore, water deficit elevated the amount of soluble carbohydrates as well as the proline content, whereas the amount of proline was lower in inoculated plants than in non-inoculated ones. All the growth parameters were improved in the AMF-inoculated plants compared to non-inoculated ones under different irrigation regimes. Drought conditions decreased the photosynthetic pigments and efficiency, whereas AMF plants ameliorated the adverse effect of drought conditions. In general, mycorrhizal inoculation resulted in an improvement in the growth parameters as well as the phytochemical and physiological characteristics of rose-scented geranium.