Rising atmospheric concentrations of CO2 (Ca) can reduce stomatal conductance and transpiration rate in trees, but the magnitude of this effect varies considerably among experiments. The theory of optimal stomatal behaviour predicts that the ratio of photosynthesis to transpiration (instantaneous transpiration efficiency, ITE) should increase in proportion to Ca. We hypothesized that plants regulate stomatal conductance optimally in response to rising Ca. We tested this hypothesis with data from young Eucalyptus saligna Sm. trees grown in 12 climate-controlled whole-tree chambers for 2 years at ambient and elevated Ca. Elevated Ca was ambient + 240 ppm, 60% higher than ambient Ca. Leaf-scale gas exchange was measured throughout the second year of the study and leaf-scale ITE increased by 60% under elevated Ca, as predicted. Values of leaf-scale ITE depended strongly on vapour pressure deficit (D) in both CO2 treatments. Whole-canopy CO2 and H2O fluxes were also monitored continuously for each chamber throughout the second year. There were small differences in D between Ca treatments, which had important effects on values of canopy-scale ITE. However, when Ca treatments were compared at the same D, canopy-scale ITE was consistently increased by 60%, again as predicted. Importantly, leaf and canopy-scale ITE were not significantly different, indicating that ITE was not scale-dependent. Observed changes in transpiration rate could be explained on the basis that ITE increased in proportion to Ca. The effect of elevated Ca on photosynthesis increased with rising D. At high D, Ca had a large effect on photosynthesis and a small effect on transpiration rate. At low D, in contrast, there was a small effect of Ca on photosynthesis, but a much larger effect on transpiration rate. If shown to be a general response, the proportionality of ITE with Ca will allow us to predict the effects of Ca on transpiration rate.