In the context of a probable increase in intensity and frequency of extreme summer drought events, a better understanding of the key processes involved in water relations is needed to improve the theoretical foundations of predictive process-based models. This paper aims to analyse how temperate deciduous trees cope with water shortage. The exceptional summer drought of 2003 in Europe provided an opportunity to monitor stomatal conductance and twig water potential in European beech (Fagus sylvatica L.) at predawn and midday and to analyse variations with respect to leaf height within the canopy. By comparing our field measurements of twig water potential to values found in the literature, we confirmed the strong impact of soil water shortage on crown water relations. This paper shows that (1) the vertical gradient of stomatal conductance within the crown disappeared under extreme soil water depletion; (2) at maximum drought intensity, predawn twig water potential (ψ pd) reached −2.3 MPa at a height of 14 m in the crown and −2.0 MPa at a height of 10 m. The significant differences in ψ pd between the two measurement heights in the canopy may be due to night transpiration; (3) there was a close relationship between predawn twig water potential and relative extractable soil water; (4) as drought conditions intensified, there was a close relationship between canopy radiation interception and predawn water potential, as estimated daily from relative extractable soil water.