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Nitrogen is increasing in terrestrial ecosystems as a result of agricultural practices and the burning of fossil fuels. This increase is expected to be accompanied by changes in water availability due to global warming. We examined the effects of nitrogen and water manipulations on Schizachyrium scoparium, one of the dominant grasses in the Great Plains. Schizachyrium scoparium responded positively to watering, with an increase in photosynthesis, stomatal conductance, water and nitrogen use efficiencies, and water potential. Under watered conditions, fertilization had no significant effect on measured parameters, except for nitrogen-use efficiency. Significant differences appeared between fertilized and nonfertilized plants under moderate drought, with fertilized plants maintaining higher photosynthesis and water-use efficiency than nonfertilized plants. Water potential declined with water stress but did not differ between fertilization treatments, while nitrogen-use efficiency was significantly higher under non fertilized than fertilized treatment. Differences among fertilization treatments disappeared under severe drought. We conclude that S. scoparium will likely respond positively to fertilization under moderate drought in the Great Plains. However, under severe drought, fertilization will not provide any physiological advantages to S. scoparium.