diff --git a/changelogs/fragments/group_by_localhost.yaml b/changelogs/fragments/group_by_localhost.yaml
new file mode 100644
index 00000000000..81835d3fba3
--- /dev/null
+++ b/changelogs/fragments/group_by_localhost.yaml
@@ -0,0 +1,2 @@
+bugfixes:
+- group_by - support implicit localhost (https://github.com/ansible/ansible/pull/41860)
diff --git a/lib/ansible/plugins/strategy/__init__.py b/lib/ansible/plugins/strategy/__init__.py
index 32053b4da53..216bd7f98e1 100644
--- a/lib/ansible/plugins/strategy/__init__.py
+++ b/lib/ansible/plugins/strategy/__init__.py
@@ -717,7 +717,12 @@ class StrategyBase:
         # the host here is from the executor side, which means it was a
         # serialized/cloned copy and we'll need to look up the proper
         # host object from the master inventory
-        real_host = self._inventory.hosts[host.name]
+        real_host = self._inventory.hosts.get(host.name)
+        if real_host is None:
+            if host.name == self._inventory.localhost.name:
+                real_host = self._inventory.localhost
+            else:
+                raise AnsibleError('%s cannot be matched in inventory' % host.name)
         group_name = result_item.get('add_group')
         parent_group_names = result_item.get('parent_groups', [])