Technical Abstract: Ecosystem water and carbon fluxes were monitored over a riparian grassland, mesquite-invaded grassland, and mesquite woodland to understand the consequences of woody plant encroachment. Water use and carbon gain were largest at the woodland site. Results suggest that the deep roots of mesquite will lead to a decoupling of ecosystem water sources as the invading mesquites mature in former grasslands. The ability of mesquite to rely on stable groundwater sources rather than precipitation enhanced net carbon uptake in the dry periods and net carbon loss in rainy periods. These results highlight the important role that water sources and ecosystem morphology play on controlling water and carbon balances in semiarid areas.