The physiological response of two species of grasses with C3 and C4 mechanisms syndromes, Napier grass (Pennisetum purpureum Schumach × Pennisetum glaucum (L.) R. Br) and hydric common reed grass (Phragmites australis (Cav.) Trin. Ex Steud) was examined under ambient (aCO2) and elevated CO2 (eCO2), in combination with water and temperature stress treatments. Under eCO2 and subjected to water and temperature stress, the Napier grass maintained higher daytime leaf water potential (LWP) by reducing transpiration (E) and executing larger osmotic adjustment (OA) at an average of 0.85 MPa compared with 0.42 MPa for common reed; carbon assimilation (PN) was thus higher for the Napier grass. Under aCO2 and low temperature, water stress induced no significant differences in OA between the grasses, but Napier grass still had higher PN than that of common reed. Recovery in LWP and PN following re-watering of water-stressed plants was more rapid in Napier grass than that in the common reed; the former had also higher water-use efficiency due to its low specific water use (water use/leaf area) that was just a fraction (less than 6%) that of the common reed. Exposure of common reed to eCO2 reduced stomata number, but increased it in the Napier grass, especially when subjected to water stress and high temperature. Exposure to eCO2 enhanced OA capacity and E control in Napier grass resulting in superior physiological profile over the common reed subjected to water and heat stress.