Trees in the wet–dry tropics experience droughts of 4–5 months duration each year. We examined the phyllode and canopy responses to such drought and the subsequent recovery following rains, in 2-year-old field-grown Acacia auriculiformis A. Cunn. ex Benth., grown in Darwin, Australia. During the dry season, photosynthesis declined from 24 to 5 µmol m–2 s–1. Initially, decreases in phyllode chlorophyll and soluble protein content were paralleled by a decrease in stomatal conductance and the ratio of intercellular to ambient carbon dioxide concentrations (Ci:Ca) remained above 0.65. Only at the end of the dry season, when phyllode chlorophyll and soluble protein content had declined 73 and 52% respectively, did stomatal limitations predominated and the Ci:Ca ratio dropped to below 0.5. The first rains of the wet season, despite being small, removed stomatal limitations after 1–8 days. Within 4 weeks, photosynthetic rates in the phyllodes subjected to 5 months of drought, recovered to 70–95% of wet season values. Photosynthetic recovery appeared to be related to restoration of chlorophyll content and variations in the extent of recovery could be explained by the differing final chlorophyll contents. Both phyllode soluble protein content and stomatal conductance rates recovered to more than 90% of wet season values. These results indicate that during prolonged drought and recovery after rain, mesophyll limitations to photosynthesis predominated in this tree species. Shoot growth, to replace the 35–45% of foliage lost during the dry season, did not commence until more than 11 weeks after the first rains. Thus, the recovery of tree photosynthetic capacity in the early wet season was dependent on the recovery of foliage retained during the dry season, rather than the production of new foliage. Such a response may represent an important adaptive strategy that permits a rapid response to the first rains with a minimum outlay of new resource.