Drought stress (DS) is a serious abiotic stress and a major concern across the globe as its intensity is continuously climbing. Therefore, it is direly needed to develop new management strategies to mitigate the adverse effects of DS to ensure better crop productivity and food security. The use of arbuscular mycorrhizal fungi (AMF) has emerged as an important approach in recent years to improve crop productivity under DS conditions. AMF establishes a relationship with 80% of land plants and it induces pronounced impacts on plant growth and provides protection to plants from abiotic stress. Drought stress significantly reduces plant growth and development by inducing oxidative stress, disturbing membrane integrity, plant water relations, nutrient uptake, photosynthetic activity, photosynthetic apparatus, and anti-oxidant activities. However, AMF can significantly improve the plant tolerance against DS. AMF maintains membrane integrity, improves plant water contents, nutrient and water uptake, and water use efficiency (WUE) therefore, improve the plant growth under DS. Moreover, AMF also protects the photosynthetic apparatus from drought-induced oxidative stress and improves photosynthetic efficiency, osmolytes, phenols and hormone accumulation, and reduces the accumulation of reactive oxygen species (ROS) by increasing anti-oxidant activities and gene expression which provide the tolerance to plants against DS. Therefore, it is imperative to understand the role of AMF in plants grown under DS. This review presented the different functions of AMF in different responses of plants under DS. We have provided a detailed picture of the different mechanisms mediated by AMF to induce drought tolerance in plants. Moreover, we also identified the potential research gaps that must be fulfilled for a promising future for AMF. Lastly, nitrogen (N) is an important nutrient needed for plant growth and development, however, the efficiency of applied N fertilizers is quite low. Therefore, we also present the information on how AMF improves N uptake and nitrogen use efficiency (NUE) in plants.