The response of boreal ecosystems to future global change is an uncertain but potentially critical component of the feedback between the terrestrial biosphere and the atmosphere. To reduce some of the uncertainties in predicting the responses of this key ecosystem, the climate change experiment (CLIMEX) exposed an entire undisturbed catchment of boreal vegetation to CO2 enrichment (560 ppmv) and climate change (+ 5 °C in winter, + 3 °C in summer) for three years (1994–96). This paper describes the leaf metabolic responses of the vegetation to the experimental treatment and model simulations of possible future changes in the hydrological and carbon balance of the site. Randomized intervention analysis of the leaf gas exchange measurements for the dominant species indicated Pinus sylvestris had significantly (P < 0.01) higher photosynthetic rates and Betula pubescens and Vaccinium myrtillus had significantly (P < 0.01) lower stomatal conductances after three years treatment compared to the controls. These responses led to sustained increases in leaf water-use efficiency of all species of trees and ground shrubs, as determined from carbon isotope analyses. Photosynthesis (A) vs. intercellular CO2 (ci) response curves (A/ci responses), RuBisCo analysis and leaf nitrogen data together suggested none of the species investigated exhibited down-regulation in photosynthetic capacity. At the whole ecosystem level, the improved water economy of the plants did not translate into increased catchment runoff. Modelling simulations for the site indicate this was most likely brought about by a compensatory increase in evapotranspiration. In terms of the carbon budget of the site, the ecosystem model indicates that increased CO2 and temperature would lead to boreal ecosystems of the type used in CLIMEX, and typical of much of southern Norway, acting as moderate net sinks for CO2.