Intercellular CO2 mole fractions (Ci) are lower in the upper canopy relative to the lower canopy leaves. This canopy gradient in Ci has been associated with enhanced rates of carbon assimilation at high light, and concomitant greater draw-downs in Ci. However, increases in irradiance in the canopy are generally also associated with decreases in leaf water availability. Thus, stress effects on photosynthesis rates (A) and stomatal conductance (G), may provide a further explanation for the observed Ci gradients. To test the hypotheses of the sources of canopy variation in Ci, and quantitatively assess the influence of within-canopy differences in stomatal regulation on A, the seasonal and diurnal variation in G was studied in relation to seasonal average daily integrated quantum flux density (Qint) in tall shade-intolerant Populus tremula L. trees. Daily time-courses of A were simulated using the photosynthesis model of Farquhar et al. (Planta 149, 78–90, 1980). Stable carbon isotope composition of a leaf carbon fraction with rapid turnover rate was used to estimate canopy gradient in Ci during the simulations. Daily maximum G (Gmax) consistently increased with increasing Qint. However, canopy differences in Gmax decreased as soil water availability became limiting during the season. In water-stressed leaves, there were strong mid-day decreases in G that were poorly associated with vapour pressure deficits between the leaf and atmosphere, and the magnitude of the mid-day decreases in G occasionally interacted with long-term leaf light environment. Simulations indicated that the percentage of carbon lost due to mid-day stomatal closure was of the order of 5–10%, and seasonal water stress increased this percentage up to 20%. The percentage of carbon lost due to stomatal closure increased with increasing Qint. Canopy differences in light environment resulted in a gradient of daily average Ci of approximately 20 µmol mol−1. The canopy variation in seasonal and diurnal reductions in G led to a Ci gradient of approximately 100 µmol mol−1, and the actual canopy Ci gradient was of the same magnitude according to leaf carbon isotope composition. This study demonstrates that stress effects influence Ci more strongly than within-canopy light gradients, and also that leaves acclimated to different irradiance and water stress conditions may regulate water use largely independent of foliar photosynthetic potentials.