(1) In the subhumid Riverina area of Australia, Callitris columellaris forms a largely monospecific tree layer through which scattered individuals of Eucalyptus microcarpa emerge. Measurements of the rates of gas exchange of the two species under varying degrees of water stress in the field, and descriptions of the morphology of the leaf surfaces of the two species are presented. (2) During summer drought, xylem water potential (ψ) of Callitris columellaris decreased to -6.58 MPa and the rates of photosynthesis and transpiration decreased to zero by mid-morning. In contrast, significant rates of gas exchange were measured throughout the day in E. microcarpa, even at ψ = -5.51 MPa. (3) The stomata of both species are sunken and the leaf surfaces are covered by waxes. In Callitris, however, the stomata are also in furrows between decurrent leaves, and the closing of these furrows apparently stops gas exchange completely. (4) Under severe drought, the survival of Callitris within the woodland may depend on the control of gas exchange to stop transpiration almost completely. The survival of Eucalyptus, in which gas exchange continues under adverse conditions, may depend on the development of lignotubers which can resprout after die-back due to drought.