This paper addresses the question whether terrestrial ecosystems will continue to be a potential sink for atmospheric CO2 mitigating the effects of global climatic change, in the light of the findings of various studies on the long term effects of elevated CO2 on productivity of plants in general and forests in particular. Native forests are dominated by plants with C3 type of photosynthesis. Because C3 photosynthesis is CO2-limited at the existing atmospheric CO2 concentration, elevated CO2 increases photosynthetic rates in these plants at any given light intensity. Increased photosynthesis at very low light intensities has relevance to forest undergrowths and shaded leaves of large trees in the forest where photosynthesis is usually light-limited. Several studies show that the initial stimulation in photosynthesis may decrease with time depending upon the nutrition level and sink capacity of the plants, but the photosynthetic rates will not go below the rates observed at the current levels of CO2. Increased canopy photosynthesis and decreased respiration and transpiration rates led to increased biomass at the cost of reduced amounts of water in plants and ecosystems that were exposed to elevated CO2. Plants grown at elevated CO2 had higher efficiency of water, light and nutrient utilization and altered tissue composition, particularly increased carbohydrate and decreased protein contents. This can alter the C:N ratio and thus the quality of litter affecting its decomposition in a future world rich in CO2. Long term regulation of these biological processes in response to elevated CO2 will have a direct impact on the carbon and water balance of ecosystems.