Climatic adaptation is an example of a genotype-by-environment interaction (GxE) of fitness. Selection upon gene expression regulatory variation can contribute to adaptive phenotypic diversity; however, surprisingly few studies have examined how genome-wide patterns of gene expression GxE are manifested in response to environmental stress and other selective agents that cause climatic adaptation. Here, we characterize drought-responsive expression divergence between upland (drought-adapted) and lowland (mesic) ecotypes of the perennial C4grass,Panicum hallii, in natural field conditions. Overall, we find thatcis-regulatory elements contributed to gene expression divergence across 47% of genes, 7.2% of which exhibit drought-responsive GxE. While less well-represented, we observe 1294 genes (7.8%) withtranseffects.Trans-by-environment interactions are weaker and much less common thancisGxE, occurring in only 0.7% oftrans-regulated genes. Finally, gene expression heterosis is highly enriched in expression phenotypes with significant GxE. As such, modes of inheritance that drive heterosis, such as dominance or overdominance, may be common among GxE genes. Interestingly, motifs specific to drought-responsive transcription factors are highly enriched in the promoters of genes exhibiting GxE andtransregulation, indicating that expression GxE and heterosis may result from the evolution of transcription factors or their binding sites.P. halliiserves as the genomic model for its close relative and emerging biofuel crop, switchgrass (Panicum virgatum). Accordingly, the results here not only aid in the discovery of the genetic mechanisms that underlie local adaptation but also provide a foundation to improve switchgrass yield under water-limited conditions.