AbstractThe ascent of water from the soil to the leaves of vascular plants, described by the study of plant hydraulics, regulates ecosystem responses to environmental forcing and recovery from stress periods. Several approaches to model plant hydraulics have been proposed. In this study, we introduce four different versions of plant hydraulics representations in the terrestrial biosphere model T&C to understand the significance of plant hydraulics to ecosystem functioning. We tested representations of plant hydraulics, investigating plant water capacitance, and long‐term xylem damages following drought. The four models we tested were a combination of representations including or neglecting capacitance and including or neglecting xylem damage legacies. Using the models at six case studies spanning semiarid to tropical ecosystems, we quantify how plant xylem flow, plant water storage and long‐term xylem damage can modulate overall water and carbon dynamics across multiple time scales. We show that as drought develops, models with plant hydraulics predict a slower onset of plant water stress, and a diurnal variability of water and carbon fluxes closer to observations. Plant water storage was found to be particularly important for the diurnal dynamics of water and carbon fluxes, with models that include plant water capacitance yielding better results. Models including permanent damage to conducting plant tissues show an additional significant drought legacy effect, limiting plant productivity during the recovery phase following major droughts. However, when considering ecosystem responses to the observed climate variability, plant hydraulic modules alone cannot significantly improve the overall model performance, even though they reproduce more realistic water and carbon dynamics. This opens new avenues for model development, explicitly linking plant hydraulics with additional ecosystem processes, such as plant phenology and improved carbon allocation algorithms.