A model that couples stomatal conductance, photosynthesis, leaf energy balance and transport of water through the soil–plant–atmosphere continuum is presented. Stomatal conductance in the model depends on light, temperature and intercellular CO2 concentration via photosynthesis and on leaf water potential, which in turn is a function of soil water potential, the rate of water flow through the soil and plant, and on xylem hydraulic resistance. Water transport from soil to roots is simulated through solution of Richards’ equation. The model captures the observed hysteresis in diurnal variations in stomatal conductance, assimilation rate and transpiration for plant canopies. Hysteresis arises because atmospheric demand for water from the leaves typically peaks in mid-afternoon and because of uneven distribution of soil matric potentials with distance from the roots. Potentials at the root surfaces are lower than in the bulk soil, and once soil water supply starts to limit transpiration, root potentials are substantially less negative in the morning than in the afternoon. This leads to higher stomatal conductances, CO2 assimilation and transpiration in the morning compared to later in the day. Stomatal conductance is sensitive to soil and plant hydraulic properties and to root length density only after approximately 10 d of soil drying, when supply of water by the soil to the roots becomes limiting. High atmospheric demand causes transpiration rates, LE, to decline at a slightly higher soil water content, θs, than at low atmospheric demand, but all curves of LE versus θs fall on the same line when soil water supply limits transpiration. Stomatal conductance cannot be modelled in isolation, but must be fully coupled with models of photosynthesis/respiration and the transport of water from soil, through roots, stems and leaves to the atmosphere.