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Woody encroachment has been widely documented in rangelands over approximately the last century. It is generally believed that this increase in aboveground biomass leads to increases in C sequestration, which, due to deeper rooting systems and leaf area of trees, implies a cost in terms of water availability due to increased evapotranspiration. To explore the evidence for this hypothesised trade –off in functionality, we installed a pair of identical eddy covariance flux towers in a native semi –arid C 4 grassland and an adjacent encroaching Vachellia karroo woodland in the Eastern Cape, South Africa, with otherwise similar site characteristics, and compared carbon © and water budgets over the period September 2019 to February 2022. The woodland was marginally more productive than the grassland, but these C gains were offset primarily by disproportionately large dry season respiration effluxes, resulting in the grassland sequestering 65% more C than the woodland (389 g m-2 vs. 235 g m-2) over ~20 months of concurrent data. Differences in water use were negligible, however, with the woodland evapotranspiring just 9% more water than the grassland (845 mm vs. 775 mm), equivalent to 78% and 70% of total rainfall (1103mm), respectively. Ecosystem water use efficiencies were essentially identical over the study period (2.7 g C m-2 [kg H 2O]-1), with the grassland slightly more efficient in the dry season (2.6 vs. 2.5 g C m-2 [kg H 2O]-1). We found no evidence to support the hypothesis of a trade –off between C and water linked to encroachment at our site s. Given the complexity of ecohydrological and biogeochemical responses to vegetation shifts in these systems, however, and the wide variation in results reported in previous work, there is a clear need to replicate similar studies across broad environmental and climatic gradients towards improving understanding of these processes and developing coherent policy for rangeland management in the context of global change.