Eddy covariance measurements of carbon dioxide and water vapor exchange were made above a ponderosa pine (Pinus ponderosa Dougl. ex P. and C. Laws.) forest located in a semiarid environment in central Oregon. The stand is a mixture of old-growth and young trees. Annual net carbon gain by the ecosystem (NEE) was 320 ± 170 gC m−2year−1 in 1996 and 270 ± 180 gC m−2 year−1 in 1997. Compared to boreal evergreen forest at higher latitudes, the pine forest has a substantial net carbon gain (150 ± 80 gC m−2 year−1 in 1996 and 180 ± 80 gC m−2 year−1 in 1997) outside the traditionally defined growing season (from bud swell in early May (Day 125) to partial leaf-off in late September (Day 275)). Carbon assimilation continued to occur in the relatively mild winters, though at a slower rate (April, maximum leaf level assimilation (Amax) of 6–9.5 μmol m−2 leaf s−1), and ecosystem respiration was relatively low (∼1.6 ± 0.1 gC m−2day−1). In the growing season, although photosynthetic capacity was large (July, Amax = 16–21 μmol m−2 leaf s−1), carbon assimilation was constrained by partial stomatal closure to maintain a sustainable water flow through the soil-plant system, and ecosystem respiration was large (3.5 ± 0.1 and 4.3 ± 0.1 gC m−2 day−1 in growing season of 1996 and 1997, respectively) because of high air and soil temperatures. Despite large changes in evaporative demand over just a few days (VPD changing from 0.5 to 3.5 kPa), the ecosystem water use was remarkably constant in summer (∼1.6–1.7 mm day−1). Such homeostasis is most likely another result of stomatal control. Interannual variations in climate had a large influence on the ecosystem carbon balance. In summer 1997, an El Niño year, precipitation was more frequent (17 days with 33 mm of rain) than in summer 1996 (5 days with 5 mm of rain), and the net ecosystem exchange was substantially lower in July to September 1997 (10 ± 60 gC m−2) than during the equivalent period in 1996 (100 ± 60 gC m−2). Although temperatures between years were similar, the carbon assimilation in 1997 was offset by increased respiration, probably because soils were more frequently wet, encouraging microbial respiration.