Defoliation can reduce net fixation of atmospheric CO(2) by the canopy, but increase the intensity and duration of photosynthetically active radiation on stems. Stem CO(2) flux and leaf gas exchange in young Eucalyptus globulus seedlings were measured to assess the impact of defoliation on these processes and to determine the potential contribution of re-fixation by photosynthetic inner bark in offsetting the effects of defoliation in a woody species. Pot and field trials examined how artificial defoliation of the canopy affected the photosynthetic characteristics of main stems of young Eucalyptus globulus seedlings. Defoliated potted seedlings were characterized by transient increases in foliar photosynthetic rates and concomitant decreases in stem CO(2) fluxes (both in the dark and light). Defoliated field-grown seedlings showed similar stem CO(2) flux responses, but of reduced magnitude. Despite demonstrating increased re-fixation capability, defoliated potted-seedlings had slowed stem growth. The green stem of seedlings exhibited largely shade-adapted characteristics. Defoliation reduced stem chlorophyll a/b ratio and increased carotenoid concentration. An increased capacity to re-fix internally respired CO(2) (up to 96%) suggested that stem re-fixation represents a previously unexplored mechanism to minimize the impact of foliar loss by maximizing the contribution of all photosynthetic tissues, particularly for young seedlings.