A fundamental hallmark of fungal growth is that vegetative hyphae grow exclusively by extension at the hyphal tip. However, this model of apical growth is incompatible with endophyte colonization of grasses by the symbiotic Neotyphodium and Epichloë species. These fungi are transmitted through host seed, and colonize aerial tissues that develop from infected shoot apical meristems of the seedling and tillers. We present evidence that vegetative hyphae of Neotyphodium and Epichloë species infect grass leaves via a novel mechanism of growth, intercalary division and extension. Hyphae are attached to enlarging host cells, and cumulative growth along the length of the filament enables the fungus to extend at the same rate as the host. This is the first evidence of intercalary growth in fungi and directly challenges the centuries-old model that fungi grow exclusively at hyphal tips. A new model describing the colonization of grasses by clavicipitaceous endophytes is described.