Canopy assimilation was higher for full (10.8-21.3 g CO2 m鈭? day鈭?) than for deficit irrigation (5.1-17.4 g CO2 m鈭? day鈭?). Forty-five percent of gross assimilation was lost in respiration being root respiration less than 30%of total respiration. Water use efficiency (WUE) typically decreased from maximum values around 30 g CO2 L鈭? soon after sunrise to 2-7 g CO2 L鈭? in the afternoon when vapour pressure deficit typically exceeded 5 kPa. While water stress improved instantaneous WUE only slightly, the effect was dramatic for daily values. The measurements allowed the calibration of a model coupling canopy conductance and assimilation that showed a seasonal variation in the parameters suggesting changes in the physiology of olive trees. The improvement of WUE in olive trees under water stress supports the adoption of deficit irrigation in olive orchards although further research is required to prevent negative side effects.