Spartina patens (Ait.) Muhl. is a grass native to the Atlantic coastal area of North America currently invading salt marsh ecosystems in several regions of Europe. We investigated leaf water relations and hydraulics, gas exchange, nitrogen and starch content in two populations of S. patens growing under contrasting salinity levels in a salt marsh and in a dune system in order to assess its functional plasticity as a factor contributing to its invasive potential. The analysis of leaf water relations revealed a suite of mechanisms adopted by S. patens to overcome salt and drought stress while maintaining relatively invariant leaf morphological traits and plant biomass. In particular, salt marsh plants experiencing severe water stress underwent greater osmoregulation and leaf hydraulic adjustment than dune plants. We also present the first experimental evidence for salt-mediated regulation of xylem hydraulic efficiency in a halophytic grass and suggest that it is an important functional trait allowing plants growing in saline habitats to cope with a restricted water supply. The functional plasticity of leaf water relations and xylem hydraulics emerges as a key trait underlying the competitive ability and invasive potential of S. patens.