Numerous plant pathogens, rhizosphere symbionts, and endophytic bacteria and yeasts produce the important phytohormone indole-3-acetic acid (IAA), often with profound effects on host plants. However, to date IAA production has not been documented among foliar endophytes -- the diverse guild of primarily filamentous Ascomycota that live within healthy, above-ground tissues of all plant species studied thus far. Recently bacteria that live within hyphae of endophytes (endohyphal bacteria) have been detected, but their effects have not been studied previously. Here we show not only that IAA is produced in vitro by a foliar endophyte (here identified as Pestalotiopsis aff. neglecta, Xylariales), but that IAA production is enhanced significantly when the endophyte hosts an endohyphal bacterium (here identified as Luteibacter sp., Xanthomonadales). Both the endophyte and the endophyte/bacterium complex appear to rely on an L-tryptophan dependent pathway for IAA synthesis. The bacterium can be isolated from the fungus when the symbiotic complex is cultivated at 36°C. In pure culture the bacterium does not produce IAA. Culture filtrate from the endophyte-bacterium complex significantly enhances growth of tomato in vitro relative to controls and to filtrate from the endophyte alone. Together these results speak to a facultative symbiosis between an endophyte and endohyphal bacterium that strongly influences IAA production, providing a new framework in which to explore endophyte-plant interactions.