Photosynthetic carbon gain in plants using the C3 photosynthetic pathway is substantially inhibited by photorespiration in warm environments, particularly in atmospheres with low CO2 concentrations. Unlike C4 plants, C3 plants are thought to lack any mechanism to compensate for the loss of photosynthetic productivity caused by photorespiration. Here, for the first time, we demonstrate that the C3 plants rice and wheat employ a specific mechanism to trap and reassimilate photorespired CO2. A continuous layer of chloroplasts covering the portion of the mesophyll cell periphery that is exposed to the intercellular air space creates a diffusion barrier for CO2 exiting the cell. This facilitates the capture and reassimilation of photorespired CO2 in the chloroplast stroma. In both species, 24–38% of photorespired and respired CO2 were reassimilated within the cell, thereby boosting photosynthesis by 8–11% at ambient atmospheric CO2 concentration and 17–33% at a CO2 concentration of 200 µmol mol−1. Widespread use of this mechanism in tropical and subtropical C3 plants could explain why the diversity of the world's C3 flora, and dominance of terrestrial net primary productivity, was maintained during the Pleistocene, when atmospheric CO2 concentrations fell below 200 µmol mol−1.