Several investigators have identified genetic variability for water-use efficiency (WUE=forage production/unit transpired water) in alfalfa (Medicago sativa L.). However, WUE as a component of drought resistance (drought avoidance by conserving water) has received limited emphasis in cultivar development. The objective of these studies was to evaluate the water relations and productivity of two alfalfa populations selected for large- or small-leaflet size. Forage yield, WUE, leaf transpiration, stem pressure potential and leaf temperature were determined under moisture regimes ranging from field capacity to midday plant wilting in a controlled environment. Plant WUE decreased as moisture stress increased for both populations in the controlled environment. The large-leaflet population produced an average of 11% more forage per unit of water used. Greater root mass was also observed for the large-leaflet population. Instantaneous transpiration per unit leaf area averaged 0.06 and 0.05 g m-2 s-1 (P < 0.05) for the small- and large-leaflet population, respectively when averaged across the six moisture regimes. A field study was also conducted which included irrigated and nonirrigated treatments. The small-leaflet population also had a significantly higher transpiration rate in the field under irrigated conditions. Photosynthesis was higher for the small- than the large-leaflet population in three of the four field observations. A more negative water potential was observed for the large-leaflet population in the three drier regimes in the controlled environment and for three of the four field observations. The small-leaflet population had 40% greater stand loss compared to the large across the three years of the irrigated field study and this contributed to higher plot yield for the large-leaflet population. Under nonirrigated conditions stand loss did not occur for the small-leaflet plants; however, their forage yield was 40% lower than for the large-leaflet plants. The results indicate that under cool climates, more forage production per unit of transpired water would be expected if alfalfa were selected for larger leaves. This response is attributed to the higher growth rate and reduced transpiration rate of large leaves compared to small leaves.