The combined effects of carbon dioxide (CO2) enrichment and water deficits on nodulation and N2 fixation were analysed in soybean [Glycine max (L.) Merr.]. Two short-term experiments were conducted in greenhouses with plants subjected to soil drying, while exposed to CO2 atmospheres of either 360 or 700 μmol CO2 mol–1. Under drought-stressed conditions, elevated [CO2] resulted in a delay in the decrease in N2 fixation rates associated with drying of the soil used in these experiments. The elevated [CO2] also allowed the plants under drought to sustain significant increases in nodule number and mass relative to those under ambient [CO2]. The total non-structural carbohydrate (TNC) concentration was lower in the shoots of the plants exposed to drought; however, plants under elevated CO2 had much higher TNC levels than those under ambient CO2. For both [CO2] treatments, drought stress induced a substantial accumulation of TNC in the nodules that paralleled N2 fixation decline, which indicates that nodule activity under drought may not be carbon limited. Under drought stress, ureide concentration increased in all plant tissues. However, exposure to elevated [CO2] resulted in substantially less drought-induced ureide accumulation in leaf and petiole tissues. A strong negative correlation was found between ureide accumulation and TNC levels in the leaves. This relationship, together with the large effect of elevated [CO2] on the decrease of ureide accumulation in the leaves, indicated the importance of ureide breakdown in the response of N2 fixation to drought and of feedback inhibition by ureides on nodule activity. It is concluded that an important effect of CO2 enrichment on soybean under drought conditions is an enhancement of photoassimilation, an increased partitioning of carbon to nodules and a decrease of leaf ureide levels, which is associated with sustained nodule growth and N2 rates under soil water deficits. We suggest that future [CO2] increases are likely to benefit soybean production by increasing the drought tolerance of N2 fixation.