Abstract Background and aims The use of root-associated microorganisms emerge as a sustainable tool to enhance crop tolerance and productivity under climate change, particularly in drought-affected areas. Here, the impact of an inoculum based on arbuscular mycorrhizal fungi (AMF) was evaluated on pepper (Capsicum annuum L.) cultivation at varying water irrigation treatments (well-watered, reduced irrigation and rain-fed) under open-field conditions. Methods Agronomic and ecophysiological parameters, as well as biochemical analyses on stress markers and phytohormones in leaves and on fruit quality traits, were evaluated, along with the shifts in soil- and root-associated microbial communities. Results Rain-fed water treatment caused reduced fruit sizes, while no differences were detected among well-watered and reduced irrigation. Reduced irrigation did not cause a reduction in stomatal conductance. The highest AM fungal colonization rates were observed under reduced irrigation, and the enhanced flavonoid content and reduced oxidative stress markers in AMF-inoculated plants suggested a synergistic effect of AM fungal inoculation in boosting plant tolerance against stress. A shift in microbial community composition in the different irrigation treatments, associated with different enzymatic activity, highlighted the potential role of microbial dynamics in plant stress response under water-limited conditions. Conclusion The study suggests that a reduced irrigation comes along with beneficial impacts on pepper root associated microbes, while not impairing crop performance and yields, indicating a potential of saving water. All together, our results imply that optimization of irrigation and beneficial plant–microbe interactions, such as AM fungal symbiosis, can improve pepper physiological and productivity features under climate change.