The water relation and leaf gas exchange of saxoul (Haloxylon Ammodendron Bge, a C4 shrub) seedlings were studied under water stress in 2001. Saxoul seedlings maintained high transpiration when the soil moisture was above 11%. The seedlings were able to take up water from soil with above 6 % soil water content, which was the threshold level of soil moisture for seedlings. The relationship between transpiration and potential evaporation was linear for well-watered seedlings. The de-crease of soil water availability led to different degrees of down-regulation of stomatal conductance, leaf transpiration and net CO2 assimilation rate. The stomata played a relatively small part in determining the net CO2 assimilation rate for the same seedling. The relationship between net CO2 assimilation rate and transpiration was linear diurnally, and reduction scale of leaf transpiration was much bigger than that of net CO2 assimilation rate by waters tress treatments, therefore intrinsic wa-ter-use-efficiency increased. High evaporative demand increased the leaf transpiration but inhibited net CO2 assimilation rate. Because of the effect of VPD on transpiration in this region, the transpiration of well-watered and mild water stress seedlings becomes responsive to change in stomatal conductance over a wider range.