Water stress associated with drought-like conditions is a major factor limiting plant growth and impacts productivity of natural plant communities and agricultural crops. Molecular and physiological responses of plants to water stress have been studied most extensively in model species and crops, few of which have evolved natural drought tolerance. In the current study, we examined physiological and transcriptomic responses at multiple timepoints during increasing water stress and following initial recovery from stress in a drought-tolerant C3 species, Festuca ovina. Results demonstrated a largely linear decline in physiological measures during increasing water stress but non-linear transcriptomic changes, with the largest gene expression changes associated with entering, and exiting, highest physiological stress. Global gene expression profiles revealed up-regulated genes over-represented by Gene Ontology (GO) terms such as response to abiotic stress, response to abscisic acid (ABA), and response to hormone; down-regulated genes were over-represented by categories such as cell wall organization, multidimensional cell growth, and photosynthesis. Transcription factors represented approximately 12.7% of all differentially expressed genes. This information will be valuable for further investigations of the molecular mechanisms involved in drought tolerance in C3 plants.