How trees cope with climate change-associated drought is heavily debated, but still poorly understood, which hinders our ability to make projections into the future. The role of re-fixation of respired CO2 in chloroplast-containing woody tissues and its contribution to the overall carbon budget of trees is thereby often ignored. In the current research project we will answer critical questions about the significance of woody tissue photosynthesis for stem growth, and how this recycling of respired CO2 may help maintaining tree hydraulic function during periods of drought stress through its involvement in light-dependent cavitation repair. We will also examine whether re-fixation of xylem-transported CO2 becomes more important under predicted future climate conditions, with increased atmospheric CO2 concentration and increased droughts. By applying a wide range of novel, cutting-edge techniques, and anatomical and ecophysiological principles, which are currently represented by separate research domains, we expect a major scientific breakthrough in our overall knowledge about tree growth and hydraulic functioning under changing climate regimes. This is critical to simulate tree responses with climate change and to make more accurate projections into the future.