Shoot water relations, summer gas exchange response and morphological development of western hemlock [Tsuga heterophylla (Raf.) Sarg.] and western red cedar (Thuja plicata Donn) seedlings were monitored over the first growing season on a coastal reforestation site in British Columbia. In March, osmotic potential (ψs) at saturation [ψs(sat)] was −1.98 MPa and turgor loss point [ψs(tlp)] −2.38 MPa for western hemlock, while western red cedar had −1.45 MPa ψs(sat) and −1.93 MPa ψs(tlp). Seasonally ψs increased through June and then decreased through September, with western hemlock −0.15 to −0.50 MPa lower than western red cedar. Maximum bulk modulus of elasticity (ɛmax) for western hemlock was 29.3 MPa in March, decreased to 15.0 MPa in June and increased to 25.0 MPa from July through September, while western red cedar ɛmax was 10.6 MPa in March and around 8.0 MPa thereafter. Utilized turgor (Tutil) for western hemlock was <40% from March through May, 69 to 78% from June through August and 96% in September, while western red cedar Tutil was 68 to 73% during March and April, 84 to 96% from May through August and 100% in September. Maximum CO2 assimilation rate (A) of western red cedar was more than double western hemlock, and for both species A declined in a linear fashion with increasing vapour pressure deficit (D). Maximum foliage conductance (gwv) declined in a concave manner as D increased in both species, with western red cedar values 50 to 67% greater than western hemlock. Maximum daily gwv declined in a concave manner as predawn shoot water potential (ψpd) decreased, with maximum daily gwv 1.8 to 3.6 times greater in western red cedar than western hemlock, when ψpd was −0.25 and −1.4 MPa, respectively. Western red cedar, compared to western hemlock, had a greater increase in A as gwv increased. Eight months after planting, western red cedar seedlings had twice the root growth, measured as root dry weight and root number, of western hemlock.