Technical Abstract: Functional dynamics of streamside and floodplain vegetation in arid basins are controlled generally by hydrological processes operating at local, landscape and catchment scales. However, the relative importance of the hydrologic and climate factors that drive evapotranspiration (ET) and CO2 exchange in these systems depends on complex interactions between vegetation functional composition, the availability of moisture in deep, unsaturated soil layers, and depth and variability of the near-surface water table. Here we highlight ongoing eco-hydrological studies being conducted along the upper San Pedro River in southeastern Arizona and northern Mexico. We have performed numerous sap flow, isotope, and ecosystem-scale gas exchange studies in riparian and floodplain vegetation in this river system over the past 8 years. Depth to groundwater, which varies substantially, is a key factor controlling the sensitivity of cottonwood (Populus fremontii) transpiration, leaf photosynthetic metabolism, and water sources to inputs of growing season precipitation. Such functional heterogeneity has been incorporated into water budget estimates for the riparian corridor. However, of greater importance for understanding controls on water and carbon budgets of the riparian corridor is the widespread conversion of floodplain grassland to systems dominated by the deep-rooted woody plant mesquite (Prosopis velutina). Such vegetation cover shifts are linked to non-linear changes in the sensitivity of ET and CO2 fluxes to climate drivers, especially precipitation. Knowledge about complex interactions that exist between local- and catchment-scale hydrology, precipitation and riparian and floodplain vegetation is key for developing accurate eco-hydrologic models for desert basins. Management options for riparian and floodplain vegetation should account for spatial heterogeneity in ecosystem function, especially as it relates to demand on and sensitivity to groundwater and precipitation variability and dynamics.