In 2002, the Murray-Darling Basin (MDB) in Australia experienced a severe drought, characterized by unusually high maximum surface air temperatures. Increased atmospheric carbon dioxide (CO2) affects radiative forcing, but it also directly affects vegetation by increasing its water use efficiency (WUE). The potential contribution made by the physiological response of vegetation to the anomalously warm conditions over the basin is assessed using a coupled atmosphere-land surface model. CO2 concentrations near the leaf surface are increased from preindustrial to present day and near-future levels, without changes to the radiative forcing. Results showed that the increased WUE due to higher CO2 levels led to changes in the maximum surface air temperature and latent heat flux over the basin. The mean increase in maximum surface temperature over the whole MDB in May–October 2002 was not statistically significant, but the warming and the decreases in the latent heat flux were statistically significant at a 95% confidence level over the forested regions. The impact of elevated CO2 on the changes in maximum surface temperature may be incorrectly estimated if the physiological response of vegetation is not taken into account in future climate projections for the MDB.