Global warming and a changing precipitation regime could have a profound impact on ecosystem carbon fluxes, especially in arid and semiarid grasslands where water is limited. A field experiment manipulating temperature and precipitation has been conducted in a temperate steppe in northern China since 2005. A paired, nested experimental design was used, with increased precipitation as the primary factor and warming simulated by infrared radiators as the secondary factor. The results for the first 2 yr showed that gross ecosystem productivity (GEP) was higher than ecosystem respiration, leading to net C sink (measured by net ecosystem CO2 exchange, NEE) over the growing season in the study site. The interannual variation of NEE resulted from the difference in mean annual precipitation. Experimental warming reduced GEP and NEE, whereas increased precipitation stimulated ecosystem C and water fluxes in both years. Increased precipitation also alleviated the negative effect of experimental warming on NEE. The results demonstrate that water availability plays a dominant role in regulating ecosystem C and water fluxes and their responses to climatic change in the temperate steppe of northern China.