Motivated by persistent predictions of warming and drying in the entire Mediterranean and other regions, we have examined the interactions of intrinsic water-use efficiency (W(i)) with environmental conditions in Pinus halepensis. We used 30-year (1974-2003) tree-ring records of basal area increment (BAI) and cellulose (13)C and (18)O composition, complemented by short-term physiological measurements, from three sites across a precipitation (P) gradient (280-700 mm) in Israel. The results show a clear trend of increasing W(i) in both the earlywood (EW) and latewood (LW) that varied in magnitude depending on site and season, with the increase ranging from ca. 5 to 20% over the study period. These W(i) trends were better correlated with the increase in atmospheric CO(2) concentration, C(a), than with the local increase in temperature (~0.04°C year(-1)), whereas age, height and density variations had minor effects on the long-term isotope record. There were no trends in P over time, but W(i) from EW and BAI were dependent on the interannual variations in P. From reconstructed C(i) values, we demonstrate that contrasting gas-exchange responses at opposing ends of the hydrologic gradient underlie the variation in W(i) sensitivity to C(a) between sites and seasons. Under the mild water limitations typical of the main seasonal growth period, regulation was directed at increasing C(i)/C(a) towards a homeostatic set-point observed at the most mesic site, with a decrease in the W(i) response to C(i) with increasing aridity. With more extreme drought stress, as seen in the late season at the drier sites, the response was W(i) driven, and there was an increase in the W(i) sensitivity to C(a) with aridity and a decreasing sensitivity of C(i) to C(a). The apparent C(a)-driven increases in W(i) can help to identify the adjustments to drying conditions that forest ecosystems can make in the face of predicted atmospheric change.