Two-year-old, container-grown red spruce (Picea rubens Sarg.) seedlings from a New Hampshire seed source were exposed to 10 or 11 drying cycles in which the seedlings were not watered until their midday (1400 h) xylem water potentials averaged -1.57 MPa. Control seedlings were kept well watered to maintain midday water potentials of about -0.73 MPa. After the final drying cycle, the water-stressed seedlings were rehydrated and osmotic potentials were determined by pressure-volume analysis. Gas exchange at ambient CO(2) concentration (338 ppm) and at an elevated CO(2) concentration (838 ppm) was measured on both groups of plants as they slowly dried down. No osmotic adjustment or photosynthetic acclimation occurred as a result of the water-stress treatment and both groups of seedlings maintained photosynthesis to water potentials as low as -3.0 MPa. Twenty-four hours after rehydration, the water-stressed seedlings had photosynthetic rates as high as the control seedlings. Estimated stomatal limitation to photosynthesis was approximately 30% down to water potentials of -1.4 MPa, but increased steadily as water potentials decreased further. At ambient CO(2) concentrations (338 ppm) and water potentials averaging -2.45 MPa, photosynthetic rates of water-stressed seedlings were 15% those of well-watered seedlings, whereas when the same water-stressed seedlings were measured in the presence of an elevated concentration of CO(2) (838 ppm) their photosynthetic rates were 73% those of well-watered seedlings measured at an ambient CO(2) concentration (338 ppm).