Using several adjacent Great Basin desert and Sierran montane trees and shrubs, we tested the prediction that water—use efficiency (WUE) is lower in more drought—tolerant species. We also measured maximum net photosynthetic rates and photosynthetic nitrogen—use efficiency (PNUE) to determine if these attributes decrease at high WUE. Differences in the physiological responses to resource availability were more clearly evident between growth forms, trees vs. shrubs, than between vegetation types, montane vs. desert. The shrubs (Anelanchier alnifolia, Arctostaphylos patula, and Artemisia tridentata) maintained higher rates of net photosynthesis at lower predawn water potential but had lower WUE than the trees (Juniperus osteosperma, Pinus monophylla, P. jeffreyi, and P. ponderosa). PNUE was highest in the shrubs that also had the highest foliage N content, and PNUE was inversely related to WUE. However, trees had higher nutrient retranslocation efficiency and growth—based NUE than shrubs. Low WUE and high drought tolerance of shrubs suggests that maintaining high WUE under competitive water—limited conditions may not be advantageous. In contrast, conservative use of water (high WUE) and high growth—based NUE by trees lengthens the season of net carbon assimilation and more closely matches growth with low rates of nutrient availability on nutrient—poor sites.