To determine factors controlling permeability variations within and adjacent to a fault-hosted geothermal reservoir at Dixie Valley, Nevada, we conducted borehole televiewer observations of wellbore failure (breakouts and cooling cracks) together with hydraulic fracturing stress measurements in six wells drilled into the Stillwater fault zone at depths of 2 to 3 km. Measurements in highly permeable wells penetrating the main geothermal reservoir indicate that the local orientation of the least horizontal principal stress, Shmin, is nearly optimal for normal faulting on the Stillwater fault. Hydraulic fracturing tests from these wells further show that the magnitude of Shmin is low enough to lead to frictional failure on the Stillwater and nearby subparallel faults, suggesting that fault slip is responsible for the high reservoir productivity. Similar measurements were conducted in two wells penetrating a relatively impermeable segment of the Stillwater fault zone, located 8 and 20 km southwest of the geothermal reservoir (wells 66–21 and 45–14, respectively). The orientation of Shmin in well 66–21 is near optimal for normal faulting on the nearby Stillwater fault, but the magnitude of Shmin is too high to result in incipient frictional failure. In contrast, although the magnitude of Shmin, in well 45–14 is low enough to lead to normal faulting on optimally oriented faults, the orientation of the Stillwater fault near this well is rotated by 40 from the optimal orientation for normal faulting. This misorientation, coupled with an apparent increase in the magnitude of the greatest horizontal principal stress in going from the producing to nonproducing wells, acts to inhibit frictional failure on the Stillwater fault zone in proximity to well 45–14. Taken together, data from the nonproducing and producing wells thus suggest that a necessary condition for high reservoir permeability is that the Stillwater fault zone be critically stressed for frictional failure in the current stress field.