Increased intensity in precipitation events and longer periods of water deficit are predicted as a general trend under future climate scenarios with potentially large effects on terrestrial ecosystem function. The primary objective of this study was to understand how variation in the intensity of precipitation inputs followed by intermittent soil drying events influence leaf and ecosystem carbon dioxide (CO2) and water exchange in a California annual grassland mesocosm experiment. We further examined how nitrogen (N) availability, and differences in plant community composition (grass-forb combinations) affected gas exchange responses to the precipitation treatments. Net ecosystem CO2 exchange (NEE) and evapotranspiration (ET) increased significantly with greater precipitation and were positively correlated with soil moisture. A repeated 10-day soil drying period, following 11 days of watering, strongly depressed NEE over a range of annual precipitation totals (297, 657 and 987 mm), and plant community types. Ecosystem dark respiration (Re) and leaf level photosynthesis (Amax) showed greater sensitivity to periods of soil drying in the low precipitation plots (297 mm). N additions significantly increased NEE and Re, particularly as water availability was increased. Across the range of precipitation totals and plant community types, intermittent periods of soil moisture deficit and native soil N availability constrained leaf and ecosystem level CO2 exchange, while the influence on water vapor exchange was less pronounced.