Stomata and photosynthetic responses to increasing leaf-to-air vapour pressure difference (V) were investigated in watered and droughted Eucalyptus tetrodonta when either ambient CO2 (Ca) or internal CO2 concentration (Ci) were constant. Stem hydraulic conductance and xylem and foliar abscisic acid levels were measured periodically during the drought period.As V increased, stomatal conductance (gs) declined. Maintaining Ci did not affect the response of Gs to V or predawn leaf water potential (pd). In fully watered plants the decline in gs was insufficient to prevent increased transpiration rates (Et) with increasing V. In contrast, in droughted plants, stomatal closure was sufficient to prevent increasing Et. Stomatal sensitivity to increasing V was increased by drought. As drought developed, the three phases of stomatal responses to V progressively collapsed to one where feedforward mechanisms result in decreasing Et with increasing V. Thus as drought developed the feedforward response of stomata to V entirely dominated.Net photosynthesis (Pn) and gs responded in unison to changes in V and pd. The decline in Pn as V increased, despite Ci being maintained constant, was observed in fully watered plants and in severely droughted plants. Pn was most dependent on gs at large values of V and in droughted plants.As drought progressed and pd declined, stem hydraulic conductance decreased and foliar ABA concentrations increased. The decline in maximum gs was correlated with foliar ABA levels. It is concluded here that hydraulic signals, be they atmospheric water or soil water in origin, and possibly also chemical signals regulate gs, which in turn can limit assimilation rates in seasonally dry savannas.