High resolution measurements of stem diameter variation provide a means to study short-term dynamics of tree growth and water status. In this 14-month study, daily changes in stem radius of Eucalyptus globulus Labill. seedlings were measured with electronic point dendrometers in a plantation in southern Tasmania, Australia. The daily patterns of stem expansion and shrinkage were classified into three phases: shrinkage; recovery; and increase in diameter from one maximum to the next, or increment. This study showed that rapid onset of even mild drought in irrigated trees caused distinct changes in daily patterns of stem diameter variation, particularly the duration of daily stem increment. The duration of the daily increment phase was directly related to increment magnitude. The dynamics of daily increment were significantly affected by mean minimum temperature, indicating a temperature limitation on metabolic processes underlying diameter growth in these trees. Most likely due to differences in conductance, the duration but not rate of the incremental daily expansion was greater in fast- than in slow-growing trees.