The carbon isotope signature (δ13C) of foliar cellulose from sunlit tops of trees typically becomes enriched as trees of the same species in similar environments grow taller, indicative of size-related changes in leaf gas exchange. However, direct measurements of gas exchange in common environmental conditions do not always reveal size-related differences, even when there is a distinct size-related trend in δ13C of the very foliage used for the gas exchange measurements. Since δ13C of foliage predominately reflects gas exchange during spring when carbon is incorporated into leaf cellulose, this implies that gas exchange differences in different-sized trees are most likely to occur in favorable environmental conditions during spring. If gas exchange differs with tree size during wet but not dry conditions, then this further implies that environmental sensitivity of leaf gas exchange varies as a function of tree size. These implications are consistent with theoretical relationships among height, hydraulic conductance and gas exchange. We investigated the environmental sensitivity of gas exchange in different-sized Douglas-fir (Pseudotsuga menziesii) via a detailed process model that specifically incorporates size-related hydraulic conductance [soil–plant–atmosphere (SPA)], and empirical measurements from both wet and dry periods. SPA predicted, and the empirical measurements verified, that differences in gas exchange associated with tree size are greatest in wet and mild environmental conditions and minimal during drought. The results support the hypothesis that annual net carbon assimilation and transpiration of trees are limited by hydraulic capacity as tree size increases, even though at particular points in time there may be no difference in gas exchange between different-sized trees. Maximum net ecosystem exchange occurs in spring in Pacific Northwest forests; therefore, the presence of hydraulic limitations during this period may play a large role in carbon uptake differences with stand-age. The results also imply that the impacts of climate change on the growth and physiology of forest trees will vary depending on the age and size of the forest.