We compared the potential for compensatory growth of two grass species from the Mongolian steppe that differ in their ability to persist under grazing: the rhizomatous Leymus chinensis and the caespitose Stipa krylovii, and investigated how this ability might be affected by drought. Plants were grown in a greenhouse under wet and dry conditions and subjected to a clipping treatment (biweekly removal of 75-90% of the aerial mass). Leymus exhibited a much stronger compensatory growth after clipping than Stipa. Leymus showed a significant increase in its relative growth rate (RGR) after clipping, while for Stipa RGR was negatively affected. Clipped Leymus plants maintained leaf productivity levels that were similar to undamaged individuals, while leaf-productivity in clipped Stipa dropped to less than half of that of the controls. In Leymus, there was less compensatory growth under dry than under wet conditions, while in Stipa the compensation was increased under drought. This difference probably reflects the fact that Stipa is more drought-tolerant than Leymus. The greater compensatory growth of Leymus compared to Stipa mainly resulted from a greater stimulation of its net assimilation rate (NAR), and its greater capacity to store and reallocate carbohydrates by clipping. The greater increase in NAR was probably the result of a stronger reduction in self-shading, because Leymus shoots were much denser than those of Stipa, which resulted in a higher increase in light penetration to remaining leaves after clipping. The results of this study suggest that the greater ability of Leymus to persist under grazing is the result of its larger capacity for compensatory growth.