Forests in the Fynbos biome of South Africa are mainly confined to riparian zones and sheltered ravines. A simple explanation for this restriction could be that the riparian trees are unable to survive the soil moisture deficits associated with the summer drought that is a feature of the mediterranean-type climate. A study was made of the water relations and photosynthetic characteristics of selected riparian trees ( Brabejum stellatifolium, Brachylaena neriifolia and Cunonia capensis ), and shrubs of the relatively xeric hillslopes adjoining such riparian habitats ( Protea nitida and P. repens ). Field measurements of xylem pressure potential, leaf conductance and net leaf photosynthesis were made in the wet winter of 1986 and during the spring and summer of 1986/7. Characteristics of microclimate and soil moisture, and leaf and canopy morphology were used to explain the observed stomatal behaviour. Despite marked differences in some leaf and canopy characteristics between hillslope and riparian species, stomatal behaviour, net photosynthesis and water-use efficiencies were very similar. Soil water potentials at 900 mm depth at the riparian site remained above − 0.1 MPa throughout the study and only dropped below − 0.05 MPa during the dry period. Potentials at the hillslope site frequently dropped below − 0.1 MPa. The differences in soil moisture potentials at the two sites were reflected in the pre-dawn and midday plant xylem potentials but the magnitude of differences was much less than had been expected. Similarly, diurnal courses of leaf conductance and net leaf photosynthesis were very similar for hillslope and riparian species. We suggest the following reasons for the very similar patterns of physiological response: (a) soil moisture deficits at 900 mm depth at the hillslope site were rapidly recharged following relatively light rainfall events and the periods between significant rainfall events were too short to induce drought; (b) the deep-rooted hillslope shrubs behave as phreatophytes and utilize water at depth; and (c) the hillslope communities have sparse canopies and evapotranspiration was too low to dry the soils to depth. Hillslope shrubs have low capacities for resource capture and use, and it appears that their sparse canopies have not equilibrated with available soil moisture as is the case with structurally similar sclerophyllous shrubs in other mediterranean-climate regions.