Fungal endophytes provide grasses with enhanced protection from herbivory, drought, and pathogens. The loline alkaloids (saturated 1-aminopyrrolizidines with an oxygen bridge) are fungal metabolites often present in grasses with fungal endophytes of the genera Epichloë or Neotyphodium. We conducted a Mendelian genetic analysis to test for activity of lolines produced in plants against aphids feeding on those plants. Though most loline-producing endophytes are asexual, we found that a recently described sexual endophyte, Epichloë festucae, had heritable variation for loline alkaloid expression (Lol+) or nonexpression (Lol-). By analyzing segregation of these phenotypes and of linked DNA polymorphisms in crosses, we identified a single genetic locus controlling loline alkaloid expression in those E. festucae parents. We then tested segregating Lol+ and Lol- full-sibling fungal progeny for their ability to protect host plants from two aphid species, and observed that alkaloid expression cosegregated with activity against these insects. The in planta loline alkaloid levels correlated with levels of anti-aphid activity. These results suggested a key role of the loline alkaloids in protection of host plants from certain aphids, and represent, to our knowledge, the first Mendelian analysis demonstrating how a fungal factor contributes protection to plant-fungus mutualism.