The effects of prolonged drought were studied on olive (Olea europaea L.; drought-sensitive cultivar Biancolilla and drought-tolerant cultivar Coratina) to examine how morpho-anatomical modifications in roots impact on root radial hydraulic conductivity (Lpr). Two-year-old self-rooted plants were subjected to a gradual water depletion. The levels of drought stress were defined by pre-dawn leaf water potentials (Ψw) of −1.5, −3.5 and −6.5 MPa. After reaching the maximum level of drought, plants were rewatered for 23 days. Progressive drought stress, for both cultivars, caused a strong reduction in Lpr (from 1.2 to 1.3 × 10−5 m MPa−1 s−1 in unstressed plants to 0.2–0.6 × 10−5 m MPa−1 s−1 in plants at Ψw = −6.5 MPa), particularly evident in the more suberized (brown) roots, accompanied with decreases in stomatal conductance (gs). No significant differences in Lpr and gs between the two olive cultivars were observed. Epifluorescence microscopy and image analyses revealed a parallel increase of wall suberization that doubled in white stressed roots and tripled in brown ones when compared with unstressed plants. In drought-stressed plants, the number of suberized cellular layers from the endodermis towards the cortex increased from 1–2 to 6–7. Recovery in Lpr during rewatering was correlated to the physical disruption of hydrophobic barriers, while the time necessary to obtain new mature roots likely accounted for the observed delay in the complete recovery of gs. Radial hydraulic conductivity in olive roots was strongly influenced by soil and plant water availability and it was also modulated by structural root modifications, size, growth and anatomy. These findings could be important for maintaining an optimal water status in cultivated olive trees by scheduling efficient irrigation methods, saving irrigation water and obtaining yield of high quality.