The relationship between leaf photosynthetic capacity (P,,max), net canopy COz-and H20exchange rate (NCER and Et, respectively) and canopy dry-matter production was examined in Lolium perenne L. cv. Vigor in ambient (363 -t-30 gl. 1-a) and elevated (631 + 43 gl. 1-1) CO2 concentrations. An open system for continuous and simultaneous regulation of atmospheric CO2 concentration and NCER and E~ measurement was designed and used over an entire growth cycle to calculate a carbon and a water balance. While NCER~,ax of full-grown canopies was 49% higher at elevated CO2 level, stimulation of p ..... was only 46% (in spite of a 50% rise in one-sided stomatal resistance for water-vapour diffusion), clearly indicating the effect of a higher leaf-area index under high CO2 (approx. 10% in one growing period examined). A larger amount of CO2-deficient leaves resulted in higher canopy dark-respiration rates and higher canopy light compensation points. The structural component of the high-CO2 effect was therefore a disadvantage at low irradiance, but a far greater benefit at high irradiance. Higher canopy darkrespiration rates under elevated CO2 level and low irradiance during the growing period are the primary causes for the increase in dry-matter production (19%) being much lower than expected merely based on the NCERm,x difference. While total water use was the same under high and low CO2 levels, water-use efficiency increased 25% on the canopy level and 87% on a leaf basis. In the course Abbreviations and symbols: C350 = ambient CO2, 363 +_ 30 Ixl.