During the past century, annual mean temperature has increased by 0.75°C and precipitation has shown marked variation throughout the Mediterranean basin. These historical climate changes may have had significant, but presently undefined, impacts on the productivity and structure of sclerophyllous shrubland, an important vegetation type in the region. We used a vegetation model for this functional type to examine climate change impacts, and their interaction with the concurrent historical rise in atmospheric CO2. Using only climate and soil texture as data inputs, model predictions showed good agreement with observations of seasonal and regional variation in leaf and canopy physiology, net primary productivity (NPP), leaf area index (LAI) and soil water. Model simulations for shrubland sites indicated that potential NPP has risen by 25% and LAI by 7% during the past century, although the absolute increase in LAI was small. Sensitivity analysis suggested that the increase in atmospheric CO2 since 1900 was the primary cause of these changes, and that simulated climate change alone had negative impacts on both NPP and LAI. Effects of rising CO2 were mediated by significant increases in the efficiency of water-use in NPP throughout the region, as a consequence of the direct effect of CO2 on leaf gas exchange. This increase in efficiency compensated for limitation of NPP by drought, except in areas where drought was most severe. However, while water was used more efficiently, total canopy water loss rose slightly or remained unaffected in model simulations, because increases in LAI with CO2 counteracted the effects of reduced stomatal conductance on transpiration. Model simulations for the Mediterranean region indicate that the recent rise in atmospheric CO2 may already have had significant impacts on productivity, structure and water relations of sclerophyllous shrub vegetation, which tended to offset the detrimental effects of climate change in the region.