Abstract Beech leaf disease (BLD) is a foliar disease of American Beech ( Fagus grandifolia L.) causally linked to the nematode Litylenchus crenatae mccannii and has rapidly spread throughout central and northeastern North America. This study aimed to characterize the anatomical and physiological differences between asymptomatic and symptomatic leaves to provide evidence for a mechanistic link between abnormal leaf development associated with BLD and the long‐term decline of affected trees. We found that leaf mass per area (LMA) and leaf thickness were 45% and 249% higher in symptomatic regions, respectively. The difference in leaf thickness was largely attributable to the spongy mesophyll being 410% thicker in symptomatic as compared with asymptomatic regions of the leaves, but palisade mesophyll and abaxial epidermal tissues were also thicker in symptomatic regions. While major vein density was not significantly different, minor vein density was significantly lower in symptomatic regions, suggesting that the effects on leaf development occur after the formation and initial development of first‐ and second‐order veins. Stomatal density was also lower in symptomatic leaves. Maximum photosynthetic rates were approximately 61% lower in symptomatic leaves and respiration rate increased as the percentage of affected leaf tissue increased. Collectively, our data show reduced photosynthetic capacity, increased respiration rates, and higher leaf construction costs, which will likely have a negative, long‐term impact on the carbon balance of trees affected by BLD.