Riparian plants in arid areas are subject to frequent hydrological fluctuations induced through natural flow variation and water use by humans. Although many studies have focused on the success of Tamarix ramosissima Ledeb. in its invaded ranges, its major competitor in its home range, Populus euphratica Oliv., historically has dominated riparian forests where both species occur naturally. Thus, identifying ecophysiological differences between T. ramosissima and its co-evolved competitor under varying hydrological conditions may help us understand how flow regimes affect dominance in its home range and promote invasion in new ranges. We examined ecophysiological responses of T. ramosissima and P. euphratica, which are both native to the Tarim River Basin, northwest China, to experimental alterations in groundwater. Seedlings of both species were grown in lysimeters, first under well-watered conditions and then exposed to different groundwater treatments: inundation, drought, and relatively shallow, moderate and deep groundwater. Under inundation, T. ramosissima showed little growth whereas P. euphratica died after ~45 days. Droughted seedlings of both species suffered from considerable water stress evidenced by slow growth, decreased total leaf area and specific leaf area, and decreased xylem water potential (ψ), maximum photosynthetic rate and carboxylation efficiency. Both species had better ecophysiological performances under shallow and moderate groundwater conditions. When groundwater declined below rooting depth, seedlings of both species initially experienced decreased ψ, but ψ of T. ramosissima recovered late in the experiment whereas P. euphratica maintained decreased ψ. This ability of T. ramosissima to recover from water deficit might result from its rapid root elongation and subsequent ability to acquire groundwater, which in turn likely provides ecophysiological advantages over P. euphratica. Our results suggest that recent groundwater declines along the Tarim River could facilitate T. ramosissima more due to its rapid response to changed groundwater availability. This trait may also help the success of T. ramosissima as it invaded riparian ecosystems in southwestern USA.