Interactions between annual grass and perennial legume species when they are grown together under drought and limited phosphorus (P) availability are likely to be very important for pasture productivity, but are not well understood. Therefore, the objective of this study was to compare the interactions of drought and species combination on growth, nutrition, hydraulic lift and photosynthesis of the Australian native legume Cullen australasicum and the exotic legume Medicago sativa when grown with the exotic annual ryegrass (Lolium rigidum) with poorly soluble FePO4 as the source of P. Plants were grown for 22 weeks in monoculture and in legume-grass mixtures in 1-m tall pots filled with river sand. Two moisture treatments were applied, drought (top 70 cm of soil allowed to dry after 16 weeks of establishment) and control (field capacity). In monoculture, shoot dry weight (DW) pot-1 of L. rigidum was higher than that of C. australasicum and M. sativa. In the mixtures, compared with the monocultures, an increase in shoot DW pot-1 for L. rigidum and a decrease for both C. australasicum and M. sativa resulted in a relative yield total >1. Citrate was the main carboxylate in the rhizosphere of all species, except for the drought-treated L. rigidum in monoculture and mixtures, for which malate was the main constituent. Both C. australasicum and M. sativa had higher concentrations of Ca, Mg, S, Cu, Zn, Mn and Mo in their leaves than did L. rigidum. Hydraulic lift was not detected in M. sativa and C. australasicum; likely reasons are discussed. Photosynthetic rate was similar for all species, but L. rigidum had tighter stomatal control. C. australasicum survived longer under drought than did M. sativa. In conclusion, L. rigidum out-competed the legumes. The legumes provided benefits to the growth of L. rigidum through solubilising P, but not through hydraulic lift. In addition, L. rigidum conserved moisture through tight stomatal control and produced an extensive root system to take up water and nutrients efficiently.