We examined the interactive effects of elevated CO2 concentration ([CO2]) and water stress on growth and physiology of 1-year-old peach (Prunus persica L.) seedlings grown in 10-dm3 pots in open-top chambers with ambient (350 micromol mol-1) or elevated (700 micromol mol-1) [CO2]. Seedlings were supplied weekly with a non-limiting nutrient solution. Water was withheld from half of the plants in each treatment for a 4-week drying cycle, to simulate a sudden and severe water stress during the phase of rapid plant growth. Throughout the growing season, seedlings in elevated [CO2] had higher assimilation rates, measured at the growth [CO2], than seedlings in ambient [CO2], and this caused an increase in total dry mass of about 33%. Stomatal conductance, total water uptake, leaf area and leaf number were unaffected by elevated [CO2]. Because seedlings in the two CO2 treatments had similar transpiration despite large differences in total dry mass, water-use efficiency (WUE) of well-watered and water-stressed seedlings grown in elevated [CO2] was an average of 51 and 63% higher, respectively, than WUE of comparable seedlings grown in ambient [CO2]. Elevated [CO2] enhanced total biomass of water-stressed seedlings by 31%, and thus ameliorated the effects of water limitation. However, the percentage increases in total dry mass between well-watered and water-stressed seedlings were similar in ambient (53%) and elevated (58%) [CO2], demonstrating that there was no interaction between elevated [CO2] and water stress. This finding should be considered when predicting responses of trees to global climate change in hot and dry environments, where predicted temperature increases will raise evaporative demands and exacerbate the effects of drought on tree growth.