1. Elevated CO2 concentrations often lead to increased photosynthetic carbon uptake in plants, but this does not necessarily result in a proportional increase in plant biomass. We examined this paradox for grasslands in northern California that have been exposed to elevated CO2 since 1992. We evaluated the effects of physiological adjustments on plant growth and carbon balance of the dominant species, Avena barbata, using a plant growth model. 2. Without physiological adjustments, an observed 70% increase in leaf photosynthesis in elevated CO2 was predicted to increase plant biomass by 97% whereas experimental measurements suggested 5 and 13% decreases in 1992 and 1993, respectively, and a 40% increase in 1994. 3. Simulations with an increase in carbon allocation to roots by 29%, or leaf death rate by 80%, or non-structural carbohydrate storage by 60%, or leaf mass per unit area by 25% each predicted an approximately 40% increase in plant biomass in 1994 under elevated CO2. It follows that greater suppression of the biomass responses to elevated CO2 in 1992 and 1993 resulted from variable combinations of these physiological adjustments. 4. This modelling study concludes that (a) an increase in carbon loss or (b) a decrease in carbon-use efficiency or (c) an increase in carbon allocation to root growth will result in an increase in biomass growth that is less than that in leaf photosynthesis under elevated CO2. Alternatively, if carbon loss is reduced (e.g. depressed respiration) and/or carbon allocation to leaf growth is increased, biomass growth may be stimulated more than leaf photosynthesis by atmospheric CO2 concentration. Moreover, this modelling exercise suggests that physiological adjustments may have substantial effects on ecosystem carbon processes by varying ecosystem carbon influx, litterfall and litter quality. [ABSTRACT FROM AUTHOR]