The Maruia Valley on the West Coast of the South Island of New Zealand is a region with Nothofagus forest dominated by mixtures of N. fusca and N. menziesii. The Station Creek area was selected for environmental and gas exchange measurements with the two species. The mean daily temperature and vapour pressure deficit (VPD) variation was found to be up to two times higher on an open logged site than under both closed canopy and a small canopy gap. The light flux under closed canopy gap was 5% of that gap measured in the open. During summer the light flux under the canopy gap was up to 25% of that in the open. Gas exchange was measured using a LI-COR LI-6000 portable photosynthesis system. An improved set of formulae were developed for this system and have been implemented in a computer programme for the IBM PC and compatibles. Gas exchange measurements at Station Creek were used to determine the maximum rates of photosynthesis (Amax) and stomatal conductance (gmax) as well as the sensitivity of these estimates to VPD. The rates of gas exchange were higher in N. menziesii than N. fusea. No significant difference was found between species for the estimates of stomatal and photosynthetic sensitivity. In addition there was no difference between foliage growing in the open, under a canopy gap, or under closed canopy. Gas exchange measurements of saplings growing in a nursery at Rangiora on the east coast of the South Island gave similar results during early summer. As the season progressed, the rates were lower at Rangiora due to moderate water stress. It is suggested that Nothofagus seedlings have a wide ecological tolerance, which is in part due to the generalized stomatal response to VPD. This can explain how Nothofagus is capable of regenerating under a wide range of environmental conditions. Under extreme environments seedling growth is reduced and regeneration will succeed only in the absence of rapidly growing competing species.