We examined factors that limit diurnal and seasonal photosynthesis in Leymus, a robust tussock grass from shrub-steppes of western North America. Data from plants in a natural stand and in experimental field plots indicate that this bunchgrass has 1) a high photosynthetic capacity, 2) high leaf nitrogen content and high nitrogen-use efficiency, 3) a steep leaf-to-air diffusion gradient for carbon dioxide, which enhances intrinsic water-use efficiency, and 4) photosynthetic tissues that tolerate severe water stress and recover quickly from moderate water stress. Midday depressions of CO2 assimilation (A) and stomatal conductance were slight in plants with plentiful water, but marked in plants subject to moderate water stress. Midday stomatal closure in moderately stressed plants reduced intercellular carbon dioxide concentration (c(i)) by approximate to 40 mu l liter(-1). The maximum rate of A achieved during the day for severely stressed plants (predawn water potential = -4 MPa) was one-third and daily carbon gain per unit leaf area was about one-fourth that of well-watered plants. For plants in the natural stand, CO2-saturated photosynthesis declined almost linearly with decreasing soil water availability over the growing season, whereas there was little effect on A at ambient CO2 levels or on carboxylation efficiency until predawn water potentials reached -1.8 MPa. Nitrogen-use efficiency declined with diminishing soil moisture, but there was no seasonal change in stomatal limitation or instantaneous water-use efficiency as estimated from A vs. c(i) curves at optimal leaf temperature and moderate atmospheric evaporative demand. Thus, reduced stomatal conductance in response to increased evaporative demand may increase stomatal limitation diurnally, but over the growing season, stomatal limitation estimated from A vs. c(i) curves is relatively constant because maximum stomatal conductance is closely tuned to the CO2 assimilatory capacity of the mesophyll.