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Abstract: We used an eddy covariance technique to measure evapotranspiration and carbon flux over two very different growing seasons for a typical steppe on the Inner Mongolia Plateau, China. The rainfall during the 2004 growing season (344.7mm) was close to the annual average (350.43mm). In contrast, precipitation during the 2005 growing season was significantly lower than average (only 126mm). The wet 2004 growing season had a higher peak evapotranspiration (4mmday−1) than did the dry 2005 growing season (3.3mmday−1). In 2004, latent heat flux was mainly a consumption resource for net radiation, accounting for ∼46% of net radiation. However, sensible heat flux dominated the energy budget over the whole growing season in 2005, accounting for 60% of net radiation. The evaporative rate (LE/R n) dropped by a factor of four from the non-soil stress to soil water limiting conditions. Maximum half-hourly CO2 uptake was −0.68mgm−2 s−1 and maximum ecosystem exchange was 4.3gCO2 m−2 day−1 in 2004. The 2005 drought growing stage had a maximum CO2 exchange value of only −0.22mgm−2 s−1 and a continuous positive integrated-daily CO2 flux over the entire growing season, i.e. the ecosystem became a net carbon source. Soil respiration was temperature dependent when the soil was under non-limiting soil moisture conditions, but this response declined with soil water stress. Water availability and a high vapor pressure deficit severely limited carbon fixing of this ecosystem; thus, during the growing season, the capacity to fix CO2 was closely related to both timing and frequency of rainfall events. [Copyright &y& Elsevier]