Predicting the seasonal dynamics of ecosystem carbon fluxes is challenging in broadleaved evergreen forests because of their moderate climates and subtle changes in canopy phenology. We assessed the climatic and biotic drivers of the seasonality of net ecosystem-atmosphere CO2 exchange (NEE) of a eucalyptus-dominated forest near Sydney, Australia, using the eddy covariance method. The climate is characterised by a mean annual precipitation of 800 mm and a mean annual temperature of 18 degrees C, hot summers and mild winters, with highly variable precipitation. In the 4-year study, the ecosystem was a sink each year (-225 g Cm-2 yr(-1) on average, with a standard deviation of 108 g Cm-2 yr(-1)); inter-annual variations were not related to meteorological conditions. Daily net C uptake was always detected during the cooler, drier winter months (June through August), while net C loss occurred during the warmer, wetter summer months (December through February). Gross primary productivity (GPP) seasonality was low, despite longer days with higher light intensity in summer, because vapour pressure deficit (D) and air temperature (T-a) restricted surface conductance during summer while winter temperatures were still high enough to support photosynthesis. Maximum GPP during ideal environmental conditions was significantly correlated with remotely sensed enhanced vegetation index (EVI; r(2) = 0.46) and with canopy leaf area index (LAI; r(2) = 0.29), which increased rapidly after mid-summer rainfall events. Ecosystem respiration (ER) was highest during summer in wet soils and lowest during winter months. ER had larger seasonal amplitude compared to GPP, and therefore drove the seasonal variation of NEE. Because summer carbon uptake may become increasingly limited by atmospheric demand and high temperature, and because ecosystem respiration could be enhanced by rising temperatures, our results suggest the potential for large-scale seasonal shifts in NEE in sclerophyll vegetation under climate change.