The stable isotopic composition of dissolved inorganic carbon (δ13C-DIC) was investigated as a potential tracer of streamflow generation processes at the Sleepers River Research Watershed, Vermont, USA. Downstream sampling showed δ13C-DIC increased between 3–5‰ from the stream source to the outlet weir approximately 0·5 km downstream, concomitant with increasing pH and decreasing PCO2. An increase in δ13C-DIC of 2·4 ± 0·1‰ per log unit decrease of excess PCO2 (stream PCO2 normalized to atmospheric PCO2) was observed from downstream transect data collected during snowmelt. Isotopic fractionation of DIC due to CO2 outgassing rather than exchange with atmospheric CO2 may be the primary cause of increased δ13C-DIC values downstream when PCO2 of surface freshwater exceeds twice the atmospheric CO2 concentration. Although CO2 outgassing caused a general increase in stream δ13C-DIC values, points of localized groundwater seepage into the stream were identified by decreases in δ13C-DIC and increases in DIC concentration of the stream water superimposed upon the general downstream trend. In addition, comparison between snowmelt, early spring and summer seasons showed that DIC is flushed from shallow groundwater flowpaths during snowmelt and is replaced by a greater proportion of DIC derived from soil CO2 during the early spring growing season. Thus, in spite of effects from CO2 outgassing, δ13C of DIC can be a useful indicator of groundwater additions to headwater streams and a tracer of carbon dynamics in catchments. Copyright © 2007 John Wiley & Sons, Ltd.