The soilborne fungal plant pathogen Verticillium longisporum invades the roots of its Brassicaceae hosts and proliferates in the plant vascular system. Typical aboveground symptoms of Verticillium infection on Brassica napus and Arabidopsis thaliana are stunted growth, vein clearing, and leaf chloroses. Here, we provide evidence that vein clearing is caused by pathogen-induced transdifferentiation of chloroplast-containing bundle sheath cells to functional xylem elements. In addition, our findings suggest that reinitiation of cambial activity and transdifferentiation of xylem parenchyma cells results in xylem hyperplasia within the vasculature of Arabidopsis leaves, hypocotyls, and roots. The observed de novo xylem formation correlates with Verticillium-induced expression of the VASCULAR-RELATED NAC DOMAIN (VND) transcription factor gene VND7. Transgenic Arabidopsis plants expressing the chimeric repressor VND7-SRDX under control of a Verticillium infection-responsive promoter exhibit reduced de novo xylem formation. Interestingly, infected Arabidopsis wild-type plants show higher drought stress tolerance compared with noninfected plants, whereas this effect is attenuated by suppression of VND7 activity. Together, our results suggest that V. longisporum triggers a tissue-specific developmental plant program that compensates for compromised water transport and enhances the water storage capacity of infected Brassicaceae host plants. In conclusion, we provide evidence that this natural plant-fungus pathosystem has conditionally mutualistic features.