Long-term exposure of plants to elevated [CO2] leads to a number of growth and physiological effects, many of which are interpreted in the context of ameliorating the negative impacts of drought. However, despite considerable study, a clear picture in terms of the influence of elevated [CO2] on plant water relations and the role that these effects play in determining the response of plants to elevated [CO2] under water-limited conditions has been slow to emerge. In this paper, four areas of research are examined that represent critical, yet uncertain, themes related to the response of plants to elevated [CO2] and drought. These include (1) fine-root proliferation and implications for whole-plant water uptake; (2) enhanced water-use efficiency and consequences for drought tolerance; (3) reductions in stomatal conductance and impacts on leaf water potential; and (4) solute accumulation, osmotic adjustment and dehydration tolerance of leaves. A survey of the literature indicates that the growth of plants at elevated [CO2] can lead to conditions whereby plants maintain higher (less negative) leaf water potentials. The mechanisms that contribute to this effect are not fully known, although CO2-induced reductions in stomatal conductance, increases in whole-plant hydraulic conductance and osmotic adjustment may be important. Less understood are the interactive effects of elevated [CO2] and drought on fine-root production and water-use efficiency, and the contribution of these processes to plant growth in water-limited environments. Increases in water-use efficiency and reductions in water use can contribute to enhanced soil water content under elevated [CO2]. Herbaceous crops and grasslands are most responsive in this regard. The conservation of soil water at elevated [CO2] in other systems has been less studied, but in terms of maintaining growth or carbon gain during drought, the benefits of CO2-induced improvements in soil water content appear relatively minor. Nonetheless, because even small effects of elevated [CO2] on plant and soil water relations can have important implications for ecosystems, we conclude that this area of research deserves continued investigation. Future studies that focus on cellular mechanisms of plant response to elevated [CO2] and drought are needed, as are whole-plant investigations that emphasize the integration of processes throughout the soil–plant–atmosphere continuum. We suggest that the hydraulic principles that govern water transport provide an integrating framework that would allow CO2-induced changes in stomatal conductance, leaf water potential, root growth and other processes to be uniquely evaluated within the context of whole-plant hydraulic conductance and water transport efficiency.