The habitat of the nitrogen-fixing endophyte Azoarcus sp. strain BH72 is grass roots grown under waterlogged conditions that produce, under these conditions, ethanol. Strain BH72 is well equipped to metabolize ethanol, with eight alcohol dehydrogenases (ADHs), of which ExaA2 and ExaA3 are the most relevant ones. exaA2 and exaA3 cluster and are surrounded by genes encoding two-component regulatory systems (TCSs) termed ExaS-ExaR and ElmS-GacA. Functional genomic analyses revealed that i) expression of the corresponding genes was induced by ethanol, ii) the genes were also expressed in the rhizoplane or even inside of rice roots, iii) both TCSs were indispensable for growth on ethanol, and iv) they were important for competitiveness during rice root colonization. Both TCSs form a hierarchically organized ethanol-responsive signal transduction cascade with ExaS-ExaR as the highest level, essential for effective expression of the ethanol oxidation system based on ExaA2. Transcript and expression levels of exaA3 increased in tcs deletion mutants, suggesting no direct influence of both TCSs on its ethanol-induced expression. In conclusion, this underscores the importance of ethanol for the endophytic lifestyle of Azoarcus sp. strain BH72 and indicates a tight regulation of the ethanol oxidation system during root colonization.