For 212 days, including a 117-day-long summer drought with only 45 nun rainfall, fluxes of latent and sensible heat (lambdaE and H, respectively) and carbon dioxide (CO2) Were measured by eddy covariance over a tussock grassland in New Zealand. The measurement site was grazed and now has a low leaf area index (similar to0.5), dominated by the invasive weed Hieracium, and has a high proportion of bare soil (43%). Energy balance closure was excellent (0.97H + lambdaE) -9 (W m(-2)) = R-a, r(2) = 0.93, n = 8407 half-hourly averages and R-a is the available energy. As the drought progressed, the daily average Bowen ratio (H/lambdaE) increased from I to 15 which corresponded with increasing air and surface temperatures and vapour pressure deficit. Maximum evaporation rate was 3.8 nun per day and it averaged 1.1 turn per day, seasonally equivalent to 93% of the rainfall (241 mm) in accordance with mass conservation, but only 47% of the equilibrium evaporation rate. It was estimated that 50% of soil water was utilised before water deficit began to limit lambdaE and, on average, the evaporative fraction; lambdaE/R-a declined exponentially with time after rainfall from 0.43 to 0.05 in 15 days. Maximum net carbon dioxide uptake (denoted negative) and efflux (respiration) rates (R-e) were -5 and 2 mumol m(-2) s(-1), respectively. These rates are much less than those for grasslands elsewhere. Soil respiration rate and temperature were exponentially related when water was plentiful, but at the same temperature, respiration declined by a factor of 4 as water content ranged from 0.21 (field capacity) to 0.04 m(3) m(-3). Soil respiration responded to drought-breaking rainfall and irrigation with a return to maximum rates within I day. During spring, when soil water content was >0.10 m(3) m(-3) (October and November), the daily CO,) flux density (F-CO2) was relatively conservative at -1.2 g C m(-2) per day. During drought (January-February), the ecosystem became a carbon source with a mean emission flux of 0.70 g C m(-2) per day. Twenty days after a drought-breaking rainfall, the ecosystem returned to being a net sink, but by this time the mean daily air temperature was falling and the first frost of the winter (9 April; -1.8degreesC had occurred thus reducing the ability of the ecosystem to respond to the increased soil water content. Water availability severely limits the carbon acquisition of this ecosystem with the result that during summer, net productivity is closely related to both the frequency and the timing of rainfall events. During summer droughts the inter-montane-basin tussock grasslands may be carbon neutral. (C) 2002 Elsevier Science B.V. All rights reserved.