Seedlings of the shrub kānuka (Kunzea ericoides var. ericoides (A. Rich) J. Thompson) and the pasture grass brown top (Agrostis capillarus L.) were grown in intact soil cores in climate-controlled cabinets to analyse the thermal response of leaf-level carbon exchange at four levels of volumetric soil water content (θ). The objective was to resolve the combined effects of relatively rapid and short-term changes in θ and temperature on the thermal responses of both photosynthesis and respiration in these two contrasting plant types. Results showed that θ had a greater effect on the short-term temperature response of photosynthesis than the temperature response of respiration. The optimum value of θ for net photosynthesis was around 30% for both plants. The photosynthetic capacity of kānuka and the grass declined significantly when θ fell below 20%. The temperature sensitivity of photosynthesis was low at low soil water content and increased at moderate to high soil water content in both plant types. Statistical analysis showed that the temperature sensitivity of photosynthetic parameters was similar for both plant types, but the sensitivity of respiratory parameters differed. Respiratory capacity increased with increasing soil water content in kānuka but declined significantly when θ fell below 15%. There was no significant influence of soil water content on respiratory capacity in the grass. Collectively, our results indicate that θ influenced the temperature sensitivity of photosynthesis and respiration, and altered the balance between foliar respiration and photosynthetic capacity in both plant types.