“Sky islands” are characteristic of sequential mountain-valley terrain where mountains form an island archipelago rising from surrounding valleys of desert “sea”. At high elevations in the Madrean sky islands of the southwestern United States (USA) and Mexico, mixed evergreen conifer forests occur near the latitudinal extent of their distribution. This setting provides a unique opportunity to explore the ecosystem response to warmer and drier conditions that are forecasted to become more common throughout the species range. Accordingly, this work used the eddy covariance method to quantify carbon and water cycling dynamics from a Madrean sky island forest ecosystem for nine years between 2009 and 2018. The forest functioned as net sink of carbon dioxide throughout the year, which resulted in more carbon sequestration than other monitored montane forests in the continental western USA. Sustained forest activity was made possible by the combination of mild winter temperatures and a bimodal precipitation regime that delivered moisture during both summer and winter. Seasonally, gross primary production (GPP) was temperature limited in winter and could become moisture limited during the dry early summer period depending on antecedent snowmelt moisture. Ecosystem respiration was more sensitive than GPP to moisture availability throughout the rest of the non-winter period. Forecasted warming could thus stimulate forest carbon gains during the winter and either increase or decrease respiratory carbon loss during summer as a function of moisture. Overall, a metric of snow aridity that included snow depth and potential evapotranspiration was the best predictor of the warm season carbon balance (R2 = 0.86). The seasonally dissimilar impacts of warming and drying identified by this work inform current understanding of how climate change and/or variability may affect forest water and carbon cycling dynamics throughout the montane forest biome.