The role of photosynthesis and transpiration in the desiccation-induced inhibition of acetylene reduction (nitrogen fixation) was investigated in soybean (Glycine max [L.] Merr. var. Beeson) using an apparatus that permitted simultaneous measurements of acetylene reduction, net photosynthesis, and transpiration. The inhibition of acetylene reduction caused by low water potentials and their aftereffects could be reproduced by depriving shoots of atmospheric CO2 even though the soil remained at water potentials that should have favored rapid acetylene reduction. The inhibition of acetylene reduction at low water potentials could be partially reversed by exposing the shoots to high CO2 concentrations. When transpiration was varied independently of photosynthesis and dark respiration in plants having high water potentials, no effects on acetylene reduction could be observed. There was no correlation between transpiration and acetylene reduction in the CO2 experiments. Therefore, the correlation that was observed between transpiration and acetylene reduction during desiccation was fortuitous. We conclude that the inhibition of shoot photosynthesis accounted for the inhibition of nodule acetylene reduction at low water potentials.