Most plants experience frequent canopy wetting events in the form of dew, rain, or fog condensation. Yet, the influence of these wetting events on the movement of water along the soil-plant-atmosphere continuum (SPAC), as well as on physiological performance, are poorly understood. We investigated how canopy wetness influences plant water status and photosynthetic gas exchange by comparing pre-dawn and midday leaf water potential, leaf-level gas exchange, and chlorophyll fluorescence of sapling Sequoia sempervirens trees. Plants exposed to dry soil, with and without overnight canopy fog interception while preventing direct watering via drip showed increased predawn and midday leaf water potential above the well-watered and dry-down treatments.  Further, midday carbon assimilation and stomatal conductance to water vapor were higher in saplings receiving intercepted fog water.  We found no differences in dark-adapted leaf chlorophyll fluorescence among treatments. The effect of canopy interception on water relations of mature S. sempervirens trees along a gradient in fog intensity was also evaluated and indicated that canopy interception of fog increased leaf water potential above the maximum leaf water potential predicted by the gravitational potential gradient of 0.01 MPa m^-1. These results indicate that canopy interception and direct water absorption represents an important and quantifiable water subsidy that may temporarily decouple plants from their soil water resource. Future models of plant and ecosystem hydrology in habitats receiving regular canopy wetting events should incorporate this phenomenon.