Water availability is a major limiting factor on plant growth and productivity. Considering that Eucalyptus spp. are among the few plant species able to produce both isoprene and monoterpenes, experiments were designed to investigate the response of isoprene emission and isoprenoid concentrations in Eucalyptus citriodora saplings exposed to decreasing fraction of transpirable soil water (FTSW). In particular, this study aimed to assess: (a) the kinetic of water stress-induced variations in photosynthesis, isoprene emission, and leaf isoprenoid concentrations during progressive soil water shortage as a function of FTSW; (b) the ultradian control of isoprene emission and photosynthesis under limited soil water availability; and (c) the optimum temperature sensitivity of isoprene emission and photosynthesis under severe water stress. The optimum temperature for isoprene emission did not change under progressive soil water deficit. However, water stress induced a reallocation of carbon through the MEP/DOXP pathway resulting in a qualitative change of the stored isoprenoids. The ultradian trend of isoprene emission was also unaffected under water stress, and a similar ultradian trend of stomatal and mesophyll conductances was also observed, highlighting a tight coordination between diffusion limitations to photosynthesis during water stress. The kinetics of photosynthetic parameters and isoprene emission in response to decreasing FTSW in E. citriodora are strikingly similar to those measured in other plant functional types. These findings may be useful to refine the algorithms employed in process-based models aiming to precisely up-scale carbon assimilation and isoprenoid emissions at regional and global scales.