The effects of decreasing water potential (Ψ) on O2 evolution and fluorescence yield at room temperature and at 77 K were investigated using the lichen Lobaria pulmonaria. Changes in Ψ were created either by atmospheric desiccation or by osmotic dehydration, with either sucrose, sorbitol or NaCl as osmoticum. Independent of the method used to establish Ψ, similar inactivation patterns were obtained and were reversible after reincubation in pure water for 10 min. Our data indicate that exposure to increasing water stress acts at two levels. In the first phase, at ‘mild’ stress, i.e. at Ψ greater than −13, −16 and −20 MPa for drying, NaCl and sucrose treatments, respectively, a progressive decline in O2 production and the fluorescence yield (ΔF/Fm′ and Fv/Fm) was correlated with increases in non-photochemical quenching (qN). At the same time the photochemical quenching (qp) changed only sligthly, indicating the absence of overreduction. The Fo level remained relatively constant in this first stage of water loss. A ΔpH mediated down regulation and a donor side limitation of photosystem (PS) II are discussed. When the water stress was severe, a further decrease in the fluorescence yield was observed and correlated with a considerable decrease in Fo (second phase). Kinetic analysis of the 77 K emission showed that osmotic stress and atmospheric desiccation possibly lead to an increased spillover from PS II to PS I. In addition, a strong negative effect of NaF on the recovery from dehydration was found. This may indicate a state transition mediated by the displacement/recoupling of light harvesting complex (LHC) II from/to PS II. The photoprotective role of spatial rearrangements of antenna complexes during desiccation is discussed.