Epichloë species (including the former genus Neotyphodium) are fungal symbionts of many agronomically important forage grasses, and provide their grass hosts with protection from a wide range of biotic and abiotic stresses. Epichloë species include many interspecific hybrids with allodiploid-like genomes, which may provide the potential for combined traits or recombination to generate new traits. Though circumstantial evidence suggests that such interspecific hybrids might have arisen from nuclear fusion events following vegetative hyphal fusion between different Epichloë strains, this hypothesis has not been addressed empirically. Here, we investigated vegetative hyphal fusion and subsequent nuclear behavior in Epichloë species. A majority of Epichloë strains, especially those having a sexual stage, underwent self vegetative hyphal fusion. Vegetative fusion also occurred between two hyphae from different Epichloë strains. Though Epichloë spp. are uninucleate fungi, hyphal fusion resulted in two nuclei stably sharing the same cytoplasm, which might ultimately lead to nuclear fusion. In addition, protoplast fusion experiments gave rise to uninucleate putative hybrids, which apparently had two markers, one from each parent within the same nucleus. These results are consistent with the notion that interspecific hybrids arise from vegetative hyphal fusion. However, we also discuss additional factors, such as post-hybridization selection, that may be important to explain the recognized prevalence of hybrids in Epichloë species.