The following study investigates the timing and mechanism of impact of Swiss needle cast on Douglas-fir (Pseudotsuga menziesii) needle physiology (i.e. gas exchange). Swiss needle cast is a foliar disease caused by the fungus Phaeocryptopus gaeumannii, which occurs throughout the range of Douglas fir and until recently has been considered unimportant. However, recent surveys show the Swiss needle cast currently affects > 52611 ha of forested lands in western Oregon, USA, causing a reduction in growth of c. 23% or an implied growth loss of c. 3.2 m3 ha−1 yr−1 for 1996 alone. Gas exchange of artificially inoculated 2-yr-old Douglas-fir seedlings was monitored on a monthly basis using A/Ci curve analysis. No effect of fungal presence on gas exchange was noted until the emergence of fungal fruiting structures (pseudothecia) from needle stomata. However, once present, maximum stomatal conductance and CO2 assimilation rates were inversely proportional to the presence of pseudothecia. A/Ci curve analysis showed that declines in CO2 assimilation appeared to be due to both stomatal and nonstomatal limitations. Stomatal limitations to CO2 assimilation were the direct result of reduced CO2 diffusion through blocked stomata. Nonstomatal limitations arose, in part, from an indirect effect of pseudothecia development on Rubisco activation. For example, in both Swiss needle cast-infected foliage and foliage with artificially blocked stomata (by external application of petroleum jelly), the amount of Rubisco activation showed a strong, positive relationship with daily maximum stomatal conductance. A mechanism is proposed that outlines the impact of pseudothecia development on stomatal conductance and CO2 assimilation rates.