The combined effects of carbon dioxide (CO 2 ) enrichment and water deficits on nodulation and N 2 fixation were analysed in soybean [ Glycine max (L.) Merr.]. Two short‐term experiments were conducted in greenhouses with plants subjected to soil drying, while exposed to CO 2 atmospheres of either 360 or 700 μ mol CO 2 mol –1 . Under drought‐stressed conditions, elevated [CO 2 ] resulted in a delay in the decrease in N 2 fixation rates associated with drying of the soil used in these experiments. The elevated [CO 2 ] also allowed the plants under drought to sustain significant increases in nodule number and mass relative to those under ambient [CO 2 ]. The total non‐structural carbohydrate (TNC) concentration was lower in the shoots of the plants exposed to drought; however, plants under elevated CO 2 had much higher TNC levels than those under ambient CO 2 . For both [CO 2 ] treatments, drought stress induced a substantial accumulation of TNC in the nodules that paralleled N 2 fixation decline, which indicates that nodule activity under drought may not be carbon limited. Under drought stress, ureide concentration increased in all plant tissues. However, exposure to elevated [CO 2 ] resulted in substantially less drought‐induced ureide accumulation in leaf and petiole tissues. A strong negative correlation was found between ureide accumulation and TNC levels in the leaves. This relationship, together with the large effect of elevated [CO 2 ] on the decrease of ureide accumulation in the leaves, indicated the importance of ureide breakdown in the response of N 2 fixation to drought and of feedback inhibition by ureides on nodule activity. It is concluded that an important effect of CO 2 enrichment on soybean under drought conditions is an enhancement of photoassimilation, an increased partitioning of carbon to nodules and a decrease of leaf ureide levels, which is associated with sustained nodule growth and N 2 rates under soil water deficits. We suggest that future [CO 2 ] increases are likely to benefit soybean production by increasing the drought tolerance of N 2 fixation.