Soil water repellency can affect several soil properties such as aggregate stability. Soil texture and organic matter are two main internal factors responsible for the variability of soil water repellency. Major sources of organic matter in soil include plant residues, and exudates of plant roots and soil microorganisms. Tall fescue (Festuca arundinacea Schreb.) as an important cool-season perennial forage grass is usually infected by a fungal endophyte (Epichloë coenophiala) which often enhances resistance to biotic and abiotic stresses as well as altering the litter decomposition rate and soil properties. In this study, the effects of endophyte-infected (E+) and endophyte-free (E−) tall fescue residues (in three different levels of 0, 1 and 2%) on soil organic carbon, basal microbial respiration, water-dispersible clay and water repellency index (determined by intrinsic sorptivity method) were investigated in four texturally-different soils in the laboratory. E+ and E− tall fescue residues were completely mixed with moist soil samples and then were incubated at 25 °C. During two months of incubation period, the amended soil samples were subjected to 10 wetting and drying cycles and then, the above-mentioned soil properties were measured. The results indicated that soil organic carbon and water-dispersible clay were greater, while basal soil respiration and repellency index were lower in fine-textured soils. Water repellency index was increased by production of hydrophobic substances (for the rate of 1%) and was reduced by induced greater soil porosity (for the rate of 2%). Presence of endophyte in plant residues had no significant effect on water sorptivity, ethanol sorptivity and water repellency index; nevertheless, E+ residues increased soil organic carbon and decreased water-dispersible clay significantly. Overall, it is concluded that tall fescue residues, especially those with E+, can improve soil physical quality due to improving soil organic carbon storage and water repellency index and decreasing water-dispersible clay (as an index for aggregate instability). These E+ species and the residues have great potential to be used in sustainable soil conservational managements.