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This paper presents results of 1 year (from March 25, 2003 to March 24, 2004, 366 days) of continuous measurements of net ecosystem CO2 exchange (NEE) above a steppe in Mongolia using the eddy covariance technique. The steppe, typical of central Mongolia, is dominated by C3 plants adapted to the continental climate. The following two questions are addressed: (1) how do NEE and its components: gross ecosystem production (GEP) and total ecosystem respiration ( Reco) vary seasonally? (2) how do NEE, GEP, and Reco respond to biotic and abiotic factors? The hourly minimal NEE and the hourly maximal Reco were −3.6 and 1.2 μmol m−2 s−1, respectively (negative values denoting net carbon uptake by the canopy from the atmosphere). Peak daily sums of NEE, GEP, and Reco were −2.3, 3.5, and 1.5 g C m−2 day−1, respectively. The annual sums of GEP, Reco, and NEE were 179, 138, and −41 g C m−2, respectively. The carbon removal by sheep was estimated to range between 10 and 82 g C m−2 yr−1 using four different approaches. Including these estimates in the overall carbon budget yielded net ecosystem productivity of −23 to +20 g C m−2 yr−1. Thus, within the remaining experimental uncertainty the carbon budget at this steppe site can be considered to be balanced. For the growing period (from April 23 to October 21, 2003), 26% and 53% of the variation in daily NEE and GEP, respectively, could be explained by the changes in leaf area index. Seasonality of GEP, Reco, and NEE was closely associated with precipitation, especially in the peak growing season when GEP and Reco were largest. Water stress was observed in late July to early August, which switched the steppe from a carbon sink to a carbon source. For the entire growing period, the light response curves of daytime NEE showed a rather low apparent quantum yield ( α=−0.0047 μmol CO2 μmol−1 photons of photosynthetically active radiation). However, the α values varied with air temperature ( Ta), vapor pressure deficit, and soil water content. [ABSTRACT FROM AUTHOR]