A field experiment was established in a second-growth hardwood forest dominated by red oak (Quercus rubra L.) to examine the effects of shelterwood overstory density on leaf gas exchange and seedling water status of planted red oak, naturally regenerated red oak and sugar maple (Acer saccharum Marsh.) seedlings during the first growing season following harvest. Canopy cover of uncut control stands and moderate and light shelterwoods averaged 97, 80 and 49%, respectively. Understory light and vapor pressure deficit (VPD) strongly influenced gas exchange responses to overstory reduction. Increased irradiance beneath the shelterwoods significantly increased net photosynthesis (P(n)) and leaf conductance to water vapor (G(wv)) of red oak and maple seedlings; however, P(n) and G(wv) of planted and naturally regenerated red oak seedlings were two to three times higher than those of sugar maple seedlings in both partial harvest treatments, due in large part to decreased stomatal limitation of gas exchange in red oak as a result of increased VPD in the shelterwoods. In both species, seedling water status was higher in the partial harvest treatments, as reflected by the higher predawn leaf water potential and seedling water-use efficiency in seedlings in shelterwoods than in uncut stands. Within a treatment, planted and natural red oak seedlings exhibited similar leaf gas exchange rates and water status, indicating little adverse physiological effect of transplanting. We conclude that the use of shelterwoods favors photosynthetic potential of red oak over sugar maple, and should improve red oak regeneration in Ontario.