Four-year-old tagasaste trees in dense plantation and wide-spaced alley cropping layouts at Moora, Western Australia, were cut back to 0.6 m high and their patterns of coppice regrowth and water use monitored over 3 years. Trees reached a permanent fresh watertable at 5 m depth by means of deeply penetrating sinker roots. Dry matter (DM) accumulation and transpiration loss were closely similar at the 2 planting densities despite higher soil water contents in alley plots. Yearly transpiration at plantation density amounted to 0.55 and 0.63 of Penman-Montieth potential evapotranspiration (E-0) in the second and third years, respectively. Mean water use efficiency over the 3 years was 247 L/kg DM, compared with values in the range 186-320 L/kg for younger pot- and column-grown trees. Using a combination of neutron moisture metre (NMM) assays of soil moisture and deuterium: hydrogen ratios of groundwater and xylem water of tagasaste and annual weeds, it was shown that trees became increasingly dependent on groundwater over time and had the capacity to switch rapidly between soil and groundwater sources. Seasonal changes in carbon isotope composition of new shoot tip dry matter indicated that plantation trees were less stressed than alley trees by the third summer as they adapted to heavy dependence on groundwater. In the third season, when plantation trees were transpiring at rates equivalent to 2.3 times annual rainfall, NMM profiles and time domain reflectometry (TDR) assays indicated that no free drainage occurred and that trees were capable of hydraulically lifting groundwater to near surface soil in the dry season. Additional adaptive features of importance to this environment included heat stress induced leaf shedding, development of perennial root nodules on lower parts of tap roots, and an ability to respond in summer to artificial irrigation or a seasonal rainfall by rapidly increasing transpiration 2-3-fold to values equalling E-0.