The decline in above-ground net primary productivity (Pa) that is usually observed in forest stands has been variously attributed to respiration, nutrient or hydraulic limitations. A novel model is proposed to explain the phenomenon and the co-occurring changes in the balance between foliage, conducting sapwood and fine roots. The model is based on the hypothesis that a functional homeostasis in water transport is maintained irrespective of age: hydraulic resistances through the plant must be finely tuned to transpiration rates so as to avoid extremely negative water potentials that could result in diffuse xylem embolism and foliage dieback, in agreement with experimental evidence. As the plant grows taller, allocation is predicted to shift from foliage to transport tissues, most notably to fine roots. Higher respiration and fine root turnover would result in the observed decline in Pa. The predictions of the model have been compared with experimental data from a chronosequence of Pinus sylvestris stands. The observed reduction in Pa is conveniently explained by concurrent modifications in leaf area index and plant structure. Changes in allometry and shoot hydraulic conductance with age are successfully predicted by the principle of functional homeostasis.