Savannah-type ecosystems account for 26–30 % of global gross primary productivity GPP, with water being one of the major driving factors. In Europe, savannah-type woodlands cover an area of about 1.5 million ha. Here, the recent past has shown a significant decrease in precipitation P in winter and spring as well as a decrease in total annual precipitation. Strong effects on local water balance and car- bon sink strength have thus been reported due to changes in precipitation regime. The objective of this study is to quantify the impact of the extreme drought event in 2012 on the water balance, gross primary productivity and carbon sink strength of a typ- ical Portuguese cork-oak woodland (montado) compared to the wet year of 2011. Physiological responses of the dom- inant tree species Quercus suber (L.) are disentangled em- ploying combined photosynthesis and stomatal conductance modelling. Precipitation effectiveness ET/P increased from 86 % in 2011 to 122% in the 2012 dry year due to deep soil or groundwater access of the Q. suber trees leaving no water for groundwater replenishment. Understorey and overstorey GPP were strongly reduced, by 53 and 28%, respectively, in 2012 compared to 2011, due to the late onset of the au- tumn rains in 2011 and an additional severe winter/spring drought. However, the ecosystem was still a carbon sink in both years, but with a 38 % reduced sink strength under ex- treme drought in 2012 compared to 2011. The combined photosynthesis–stomatal conductance model yielded the best results if it was allowed to adjust photosynthetic and stomatal parameters simultaneously. If stomatal response was mod- elled with the Leuning approach, which allows for a differ- ent sensitivity to vapour pressure deficit, the stomatal model parameters were highly coupled. A change in either of the parameters needed to be compensated by the other to guar- antee a stable sensitivity of stomatal conductance to assim- ilation, independent of variations in vapour pressure deficit. The Q. suber trees showed a 37 % reduced stomatal conduc- tance during the drought period of 2012 compared to 2011, due to water supply limitations. In response to reduced leaf- internal CO2 availability, the trees strongly reduced the ap- parent maximum carboxylation rate by 43 % in 2012 com- pared to 2011. Unexpectedly, the optimum temperature Topt of the maximum electron transport rate decreased during the drought period, enhancing the susceptibility of the trees to high temperature stress during the summer. Our results suggest that, if the trend of decreasing an- nual precipitation and changed precipitation patterns on the Iberian Peninsula continues, sustained effects on lo- cal groundwater reservoirs, understorey species composition and tree mortality have to be expected in the long term. To model the effect of drought on the montado ecosystem successfully, variable apparent maximum carboxylation rate Vc,max, stomatal conductance parameter m and vapour pres- sure deficit sensitivity parameter D0 need to be incorporated into photosynthesis–stomatal conductance modelling.