Stands of groundnut (Arachis hypogaea L. cv. Kadiri-3) were grown in controlled environment glasshouses at mean atmospheric CO2 concentrations of 375 or 700 μmol mol−1 and daily mean air temperatures of 28 or 32°C on irrigated or drying soil profiles. Leaf water (Ψl) and solute potential (Ψs), relative water content (RWC), stomatal conductance (gl) and net photosynthesis (Pn) were measured at midday for the youngest mature leaf throughout the growing season. Elevated CO2 and temperature had no detectable effect on the water relations of irrigated plants, but higher values of RWC, Ψl and Ψs were maintained for longer under elevated CO2 during progressive drought. Turgor potential (Ψp) reached zero when Ψl declined to −1.6 to −1.8 MPa in all treatments; turgor was lost sooner when droughted plants were grown under ambient CO2. A 4°C increase in mean air temperature had no effect on Ψs in droughted plants, but elicited a small increase in Ψl; midday gl values were lower under elevated than under ambient CO2, and Ψl and gl declined below −1.5 MPa and 0.25 cm s−1, respectively, as the soil dried. Despite the low gl values recorded for droughted plants late in the season, Pn was maintained under elevated CO2, but declined to zero 3 weeks before final harvest under ambient CO2. Concurrent reductions in gl and increases in water use efficiency under elevated CO2 prolonged photosynthetic activity during drought and increased pod yields relative to plants grown under ambient CO2. The implications of future increases in atmospheric CO2 for the productivity of indeterminate C3 crops grown in rainfed subsistence agricultural systems in the semi-arid tropics are discussed.