This review examines the evolution of the plant vascular system from its beginnings in the green algae to modern arborescent plants, highlighting the recent advances in developmental, organismal, geochemical and climatological research that have contributed to our understanding of the evolution of xylem. Hydraulic trade-offs in vascular structure–function are discussed in the context of canopy support and drought and freeze–thaw stress resistance. This qualitative and quantitative neontological approach to palaeobotany may be useful for interpreting the water-transport efficiencies and hydraulic limits in fossil plants. Large variations in atmospheric carbon dioxide levels are recorded in leaf stomatal densities, and may have had profound impacts on the water conservation strategies of ancient plants. A hypothesis that links vascular function with stomatal density is presented and examined in the context of the evolution of wood and/or vessels. A discussion of the broader impacts of plant transport on hydrology and climate concludes this review.