The success of C₄ plants lies in their ability to concentrate CO₂ at the site of Rubisco thereby conferring greater efficiencies of light, water and nitrogen. Such characteristics should advantage C₄ plants in arid, hot environments. However, not all C₄ subtypes are drought tolerant. The relative abundance of NADP-ME species declines with increasing aridity. Furthermore, selected species have been demonstrated as being susceptible to severe drought showing metabolic limitations of photosynthesis. However there is a lack of phylogenetic control with many of these studies. The aims of this study were to determine whether the NADP-ME subtype was inherently susceptible to drought by comparing six closely related C₃ and C₄ (NADP-ME) Panicoid grasses. Gas exchange measurements were made during a natural rainless period and a controlled drought / rewatering event. Prior to water stress, the C₄ species had higher assimilation rates (A), and water use efficiencies (WUE[subscript leaf]) than the C₃ species, while transpiration rates (E) and stomatal conductances (g[subscript s]) were similar. At low soil water content, the C₃ species reduced gs by a greater extent than the C₄ species, which maintained higher E during the driest periods. The C₄ species showed proportionally greater reductions in A than the C₃ species and hence lost their WUE[subscript leaf] and photosynthetic advantage. CO₂ response curves showed that metabolic limitation was responsible for a greater decrease in A in the C₄ type than the C₃ type during progressive drought. Upon re-watering, photosynthetic recovery was quicker in the C species than the C₄ species. Results from whole plant measurements showed that the C₄ type had a significant whole plant water use efficiency advantage over the C₃ type under well-watered conditions that was lost during severe drought due to a greater loss of leaf area through leaf mortality rather than reductions in plant level transpiration rates. The C₃ type had xylem characteristics that enhanced water-conducting efficiency, but made them vulnerable to drought. This is in contrast to the safer xylem qualities of the C₄ type, which permitted the endurance of more negative leaf water potentials than the C₃ type during low soil water content. Thus, the vulnerability of photosynthesis to severe drought in NADP-ME species potentially explains why NADP-ME species abundance around the world decreases with decreasing rainfall.