Technical Abstract: Understanding the response of arid and semi-arid systems to changes in woody plant cover is an area of active research. Shifts in vegetation structure or function in these water-limited systems can have important and non-linear affects on ecosystem function and biogeochemical cycling. Most studies, however, focus on the grass and woody plant end-members of this transition. Conversion of grassland to woodland can also result in a more diverse and complex community with a mosaic of plant functional types. We took a manipulative approach to determine the contribution of annual and ephemeral herbaceous vegetation to above and below-ground ecosystem carbon flux in a riparian system undergoing woody encroachment. Annual and herbaceous ephemeral plants in this system are present primarily in areas with significant woody plant encroachment, are active during late summer in response to the summer monsoon precipitation, and die back after the first frost. Although they represent a temporally-limited contribution to the aboveground biomass, they can fill in 65 percent of the understory with plants 1 m in height and an average leaf area index of 2.5 (meters leaf/meters ground). Given this abundance of aboveground photosynthetic biomass, at their peak seasonal activity annual and ephemeral plants should have an important effect on ecosystem carbon flux, primary productivity, and water-use efficiency. We compared measurements at two sites with different densities of woody plant cover, and created plots with herbaceous plant removal to compare to nearby paired plots (<3m distant) with an intact herbaceous cover. We used chamber measurements of plot and leaf- level gas exchange to measure above- and below-ground respiration and photosynthetic rates. During periods of peak photosynthesis, we found that plots with an intact herbaceous understory could show rates of CO 2 uptake of up to 5 µmol m-2 s-1 compared to the release of -4 µmol CO2m-2 s-1 in the paired removal plots. In unmanipulated plots, aboveground respiration from the herbaceous plants on average contributed half of the total plot respiration. When compared to daily rates of uptake and respiration at the ecosystem level, these plants may contribute up to 30 percent of ecosystem CO2 flux during periods of peak biomass and activity.