This study investigated the mechanisms involved in the regulation of stomatal closure in Douglas-fir and evaluated the potential impact of compensatory adjustments in response to increasing tree height upon these mechanisms. In the laboratory, we measured leaf hydraulic conductance (Kleaf) as leaf water potential (Ψl) declined for comparison with in situ diurnal patterns of stomatal conductance (gs) and Ψl in Douglas-fir across a height gradient, allowing us to infer linkages between diurnal changes in Kleaf and gs. A recently developed timed rehydration technique was used in conjunction with data from pressure–volume curves to develop hydraulic vulnerability curves for needles attached to small twigs. Laboratory-measured Kleaf declined with increasing leaf water stress and was substantially reduced at Ψl values of −1.34, −1.45, −1.56 and −1.92 MPa for foliage sampled at mean heights of approximately 20, 35, 44 and 55 m, respectively. In situ gs measurements showed that stomatal closure was initiated at Ψl values of −1.21, −1.36, −1.74 and −1.86 MPa along the height gradient, which was highly correlated with Ψl values at loss of Kleaf. Cryogenic scanning electron microscopy (SEM) images showed that relative abundances of embolized tracheids in the central vein increased with increasing leaf water stress. Leaf embolism appeared to be coupled to changes in gs and might perform a vital function in stomatal regulation of plant water status and water transport in conifers. The observed trends in gs and Kleaf in response to changes in Ψl along a height gradient suggest that the foliage at the tops of tall trees is capable of maintaining stomatal conductance at more negative Ψl. This adaptation may allow taller trees to continue to photosynthesize during periods of greater water stress.