Seedlings of Eucalyptus maculata Hook (mesic environment) and E. brockwayi C.A. Gardn. (arid environment) were supplied 100, 70 or 40% of their water requirements estimated from leaf area and the water used by well-watered seedlings. Restricting water supply caused large differences in growth rates, which were related to large differences in total leaf area. There was a fivefold range of variation in number of leaves per plant, and a reduction of up to 20% in average leaf size as a consequence of restricting water supply. Eucalyptus maculata seedlings produced more dry matter than E. brockwayi seedlings, but net assimilation rate was higher in E. brockwayi seedlings. Transpiration rates were also higher in E. brockwayi than in E. maculata. Leaf expansion was analyzed as a function of water stress integral (S(Psi)), which is the cumulative integral over time of predawn water potential below a datum. The leaf area achieved at any stress level was not uniquely dependent on total S(Psi), there was a secondary effect associated with reduced leaf growth caused by previous stress. At any value of S(Psi), reductions in leaf growth of water-stressed seedlings relative to leaf growth of well-watered control seedlings were greater in E. maculata seedlings than in E. brockwayi. Treatment differences in both species showed that, within the levels of stress applied, a moderate water stress over a long period of time was more detrimental to dry matter production than a severe stress for a short time.