Lippia graveolens (Verbenaceae) is known for the high commercial value of its essential oils (EO), but the photosynthetic response of the plant to environmental variables has been little studied. In order to know the possible relationship between photosynthetic capacity and water status with essential oil content, we measured the water potential (psi), the photosynthesis response (A) to intercellular CO2 concentration (C-i) and photon flux density (DFF), photochemical activity and EO content of plants from two localities of the Yucatan Peninsula, Mexico: Maxcanu (sub-humid) and Coloradas (sub-arid). Plants with higher EO content were from the sub-humid site with higher psi and photosynthetic capacity (high EC, q(p) A and g(s)) than those from the semi-arid site. The relative stomatal limitation (L) was 24% in both populations, while the metabolic limitation (L-m) of A was 41% greater in plants from the semi-arid site. It was concluded that there is a relationship between the photosynthetic capacity and EO content of L. graveolens and that the lower A in the stressed population was due to both stomatal closure and metabolic factors (A at saturating CO2, and photochemical activity: Phi(PSII) q(p)) which impose a limitation on carbon gain, keeping constant the ratio C/C-a and without evidence of chronic photo-inhibition. The economic value of L. graveolens deserves further studies on wild populations growing under a natural gradient of water availability.