Piriformospora indica is an endophytic fungus that colonizes roots of many plant species and promotes growth and resistance to certain plant pathogens. Despite its potential use in agriculture, little is known on the molecular basis of this beneficial plant-fungal interaction. In a genetic screen for plants, which do not show a P. indica- induced growth response, we isolated an Arabidopsis mutant in the OXI1 (Oxidative Signal Inducible1) gene. OXI1 has been characterized as a protein kinase which plays a role in pathogen response and is regulated by H₂O₂ and PDK1 (3-PHOSPHOINOSITIDE-DEPENDENT PROTEIN KINASE1). A genetic analysis showed that double mutants of the two closely related PDK1.1 and PDK1.2 genes are defective in the growth response to P. indica. While OXI1 and PDK1 gene expression is upregulated in P. indica-colonized roots, defense genes are downregulated, indicating that the fungus suppresses plant defense reactions. PDK1 is activated by phosphatidic acid (PA) and P. indica triggers PA synthesis in Arabidopsis plants. Under beneficial co-cultivation conditions, H₂O₂ formation is even reduced by the fungus. Importantly, phospholipase D (PLD)α1 or PLDδ mutants, which are impaired in PA synthesis do not show growth promotion in response to fungal infection. These data establish that the P. indica-stimulated growth response is mediated by a pathway consisting of the PLD-PDK1-OXI1 cascade.