The hydraulic conductivity of the leaf vascular system (Kleaf) is dynamic and decreases rapidly under drought stress, possibly in response to the stress phytohormone ABA, which increases sharply in the xylem sap (ABAxyl) during periods of drought. Vascular bundle-sheath cells (BSCs; a layer of parenchymatous cells tightly enwrapping the entire leaf vasculature) have been hypothesized to control Kleaf via the specific activity of BSC aquaporins (AQPs). We examined this hypothesis and provide evidence for drought-induced ABAxyl diminishing BSC osmotic water permeability (Pf) via downregulated activity of their AQPs. ABA fed to the leaf via the xylem (petiole) both decreased Kleaf and led to stomatal closure, replicating the effect of drought. In contrast, smearing ABA on the leaf blade, while also closing stomata, did not decrease Kleaf within 2–3 h of application, demonstrating that Kleaf does not depend entirely on stomatal closure. GFP-labeled BSCs showed decreased Pf in response to ‘drought’ and ABA treatment, and a reversible decrease with HgCl2 (an AQP blocker). These Pf responses, absent in mesophyll cells, suggest stress-regulated AQP activity specific to BSCs, and imply a role for these cells in decreasing Kleaf via a reduction in Pf. Our results support the above hypothesis and highlight the BSCs as hitherto overlooked vasculature sensor compartments, extending throughout the leaf and functioning as ‘stress-regulated valves’ converting vasculature chemical signals (possibly ABAxyl) into leaf hydraulic signals.