Agrivoltaic systems, whereby photovoltaic arrays are co-located with crop or forage production, can alleviate the tension between expanding solar development and loss of agricultural land. However, the ecological ramifications of these arrays are poorly known. We used field measurements and a plant hydraulic model to quantify carbon-water cycling in a semi-arid C-3 perennial grassland growing beneath a single-axis tracking solar array in Colorado, USA. Although the agrivoltaic array reduced light availability by 38%, net photosynthesis and aboveground net primary productivity were reduced by only 6-7% while evapotranspiration decreased by 1.3%. The minimal changes in carbon-water cycling occurred largely because plant photosynthetic traits underneath the panels changed to take advantage of the dynamic shading environment. Our results indicate that agrivoltaic systems can serve as a scalable way to expand solar energy production while maintaining ecosystem function in managed grasslands, especially in climates where water is more limiting than light. In a semi-arid grassland located underneath an agrivoltaic array, grass photosynthesis was reduced by only about 6% and evapotranspiration by about 1%, despite a reduction in light availability by 38%, according to a mechanistic analysis of plant physiological data from a commercial agrivoltaic facility.