Over the past decades, green alder (Alnus alnobetula (Ehrh.) K. Koch) has spread rapidly across the Alps. Once restricted to moist north-facing slopes, it is now spreading into areas with limited water availability. Despite its growing ecological relevance in alpine environments, its physiological limits under drought conditions are largely unknown. To assess the species’ drought tolerance, we conducted a greenhouse experiment in which saplings were subjected to drought periods of varying duration, while monitoring transpiration rates (E) and the maximum (Fv/Fm) and effective (Y(II)) quantum yields of photosystem II. During drought, transpiration rates (E) declined markedly once volumetric soil water content (SWC) dropped below 10%. Recovery occurred quickly, with the rate depending on the length of the drought period. A. post-drought legacy effect caused E to remain reduced for several weeks after reirrigation. Fv/Fm proved to be rather insensitive to drought showing no significant changes until SWC fell below 5%. However, the correlation between Y(II) and photosynthetically active radiation (PAR) proved to be a useful indicator to detect moderate drought stress. When recovered samples were exposed to a second drought period, an adaptation in stomatal control was detected. E significantly decreased already at moderate drought (SWC 27%) and approached zero at SWC of 13%, indicating a short-term adaptation in stomatal control induced by the preceding drought. Also Fv/Fm decreased already at SWC of 13%, which also indicates an adaptive response after the initial drought. Although the second drought led to substantial leaf loss and resulted in mortality rates exceeding 85% by the following spring, we conclude that long-term adaptation could enable green alder to persist under drier conditions and establish on sites with higher soil moisture variability.