We analyzed 7 years (2002–2008) of micrometeorological and concurrent biological observations of carbon and water fluxes at a mature ponderosa pine forest in central Oregon in a semiarid climate. We sought to evaluate the extent that gross primary productivity, net ecosystem exchange, ecosystem respiration, net primary productivity, net ecosystem productivity, tree transpiration, and evapotranspiration varied seasonally and interannually in this ecosystem subjected to varying periods and severity of droughts. To explain variation, we found it necessary to define seasons functionally within a hydroecological year rather than by fixed calendar dates. The interannual variability in growing season length was large (45 days), and the end date was more variable than the onset. Plant-available soil water was the main determinant of carbon fluxes. Spring evapotranspiration primarily used shallow water, whereas summer and fall evapotranspiration drew water from deeper in the soil profile. A multiyear drought (2001–2003) had a more severe and fundamentally different impact on carbon and water cycles than a single-year (2005) drought because of carryover effects in soil water and carbohydrate reserves in plant tissue. Calendar year–based analysis was inadequate to diagnose drought years in precipitation and ecosystem drought response. Extension of meteorological records back to 1982 showed that anomalies were coherent across the region and that the observations represented below-average precipitation and above-average temperatures coherent with a warm-phase Pacific Decadal Oscillation. The carbon sink of this seasonally water-limited ecosystem is anticipated to increase with increasing available soil water during the growing season.