Diurnal hysteresis between evapotranspiration (ET) and vapor pressure deficit (VPD) was reported in many ecosystems, but justification for its onset and magnitude remains incomplete with biotic and abiotic factors invoked as possible explanations. To place these explanations within a holistic framework, the occurrence of hysteresis was theoretically assessed along a hierarchy of model systems where both abiotic and biotic components are sequentially added. Lysimeter evaporation (E) measurements and model calculations using the Penman equation were used to investigate the effect of the time lag between net radiation and VPD on the hysteresis in the absence of any biotic effects. Modulations from biotic effects on the ET-VPD hysteresis were then added using soil-plant-atmosphere models of different complexities applied to a grassland ecosystem. The results suggest that the hysteresis magnitude depends on the radiation-VPD lag, while the plant and soil water potentials are both key factors modulating the hysteretic ET-VPD relation as soil moisture declines. In particular, larger hysteresis magnitude is achieved at less negative leaf water potential, root water potential, and soil water potential. While plant hydraulic capacitance affects the leaf water potential-ET relation, it has negligible effects on the ET-VPD hysteresis. Therefore, the genesis and magnitude of the ET-VPD hysteresis are controlled directly by both abiotic factors such as soil water availability, biotic factors (leaf and root water potentials, which in turn depend on soil moisture), and the time lag between radiation and VPD.