Water relations for two remote populations of Dracaena tree species from the dragon tree group, Dracaena cinnabari Balfour f. and Dracaena draco (L.) L., were studied to test our hypothesis that morphological and anatomical differences in leaf structure may lead to varied functional responses to changing environmental conditions. Sap flow measurements were performed using the heat field deformation method for four Dracaena seedlings grown in one glasshouse and two greenhouses, and leaf traits related to plant-water relationships were characterised. All traits studied confirmed that D. cinnabari leaves are more xeric in their morpho-anatomical structure compared with D. draco leaves. No radial sap flow variability was detected in D. draco plant stems, whereas sap flow was found to be higher in the inner part of D. cinnabari stems. The regular occurrence of reverse sap flow at night in both Dracaena species was consistent with a staining experiment. Vapour pressure deficit (VPD) was found to be the main driver for transpiration for both Dracaena species. However, the relationship between VPD and sap flow appeared to be different for each species, with a clockwise or no hysteresis loop for D. draco and a counter-clockwise hysteresis loop for D. cinnabari. This resulted in a shorter transpiration cycle in D. cinnabari. The observed superior water-saving strategy of D. cinnabari corresponds to its more xeric morpho-anatomical leaf structure compared with D. draco.