We report the changes in CO2 assimilation, potential photochemical activity (as measured by slow fluorescence), photosynthetic pigment concentrations, and dark respiration of two desiccation-tolerant (DT) lichens (Cladonia convoluta (Lam.) P. Cout. and C. furcata (Huds.) Schrad.), and a DT moss (Tortula ruralis (Hedw.) Gaertn. ssp. ruralis) during slow drying, and on rehydration following a 12 h period of desiccation. Initially there was a two to fourfold increase in net CO., assimilation due to reduction of CO2 -diffusion resistance by elimination of excess water. Optimum water content for photosynthesis was 100-150 % of dry mass (DM) in C. convoluta, c. 100 % DM in C. furcata, and 120-200 % DM in T. ruralis. The intensity of maximum and steady-state slow fluorescence showed little change above water contents of 56%, DM in the lichens and 73 % DM in T. ruralis (corresponding to c. 30-40 % cell relative water content), but fell sharply at lower water content. The variable duorophyll-fluorescence decrease ratio (Rfd) at 690 nm peaked at 56 % DM water content in the two lichens, and at 45% DM in T. ruralis. Photochemical activity ceased at the same point in the experiments as CO, assimilation; dark respiration ceased only when desiccation was complete. In all three species, the photosynthetic apparatus remained in a fully and quickly recoverable state. Chlorophyll and carotenoid concentrations remained substantially unaltered throughout. On rehydration, chlorophyll fluorescence parameters returned within 30 min to pre-desiccation levels, and photosynthesis recovered fully and rapidly (< 1 h). All three species attained a positive carbon balance within 20 min of re-moistening, in spite of high rates of dark respiration. The results confirm the significance of extracellularly-stored water to poikilohydric DT lichens and bryophytes. The measurements, in conjunction with published data on the full-turgor water content of similar mosses and lichens, show that the cell-physiological response of photosynthesis to water deficit is not greatly different from that of either normal or DT vascular plants. Small plant size and small cell volume in DT lichens and mosses, together with rapid recovery of photosynthesis after desiccation, allow the plants to utilize the small amounts of intermittently available water from brief showers or dew.