The impact of drought on tree water use was investigated in remnant forest in the Liverpool Plains NSW. Tree water use was measured using commercial sap flow testers from December 2002 to September 2004 which corresponded with a period of drought and a period of higher rainfall. Understorey evapotranspiration and soil moisture were also measured. Water use of the stand of trees was a larger proportion of annual total rainfall (87%) during the drought period than during the post-drought period (50% water use) when rainfall was higher. Understorey water use was about 20% of rainfall, suggesting that the understorey evapotranspiration component of the water balance can make a significant contribution to water use and the availability of water for groundwater recharge. The results indicate that the remnant forest was able to survive during the drought because of deep roots. The findings also demonstrate the valuable role forests play in maintaining the hydrological balance and in ameliorating the development of dryland salinity in agricultural areas (A).