Drought and salinity (i.e. soil water stress) are the main environmental factors limiting photosynthesis and respiration and, consequently, plant growth. This review summarizes the current status of knowledge on photosynthesis and respiration under water stress. It is shown that diffusion limitations to photosynthesis under most water stress conditions are predominant, involving decreased mesophyll conductance to CO2, an important but often neglected process. A general failure of photochemistry and biochemistry, by contrast, can occur only when daily maximum stomatal conductance (gs) drops below 0.05–0.10 mol H2O m−2 s−1. Because these changes are preceded by increased leaf antioxidant activities (gs below 0.15–0.20 mol H2O m−2 s−1), it is suggested that metabolic responses to severe drought occur indirectly as a consequence of oxidative stress, rather than as a direct response to water shortage. As for respiration, it is remarkable that the electron partitioning towards the alternative respiration pathway sharply increases at the same gs threshold, although total respiration rates are less affected. Despite the considerable improvement in the understanding of plant responses to drought, several gaps of knowledge are highlighted which should become research priorities for the near future. These include how respiration and photosynthesis interact at severe stress, what are the boundaries and mechanisms of photosynthetic acclimation to water stress and what are the factors leading to different rates of recovery after a stress period.