The goal of this study was to determine the effects of atmospheric demand on both plant water relations and daily whole-tree water balance across the upper limit of a cloud forest at the mean base height of the trade wind inversion in the tropical trade wind belt. We measured the microclimate and water relations (sap flow, water potential, stomatal conductance, pressure–volume relations) of Metrosideros polymorpha Gaudich. var. polymorpha in three habitats bracketing the cloud forest's upper limit in Hawai‘i to understand the role of water relations in determining ecotone position. The subalpine shrubland site, located 100 m above the cloud forest boundary, had the highest vapor pressure deficit, the least amount of rainfall and the highest levels of nighttime transpiration (EN) of all three sites. In the shrubland site, on average, 29% of daily whole-tree transpiration occurred at night, while on the driest day of the study 50% of total daily transpiration occurred at night. While EN occurred in the cloud forest habitat, the proportion of total daily transpiration that occurred at night was much lower (4%). The average leaf water potential (Ψleaf) was above the water potential at the turgor loss point (ΨTLP) on both sides of the ecotone due to strong stomatal regulation. While stomatal closure maintained a high Ψleaf, the minimum leaf water potential (Ψleafmin) was close to ΨTLP, indicating that drier conditions may cause drought stress in these habitats and may be an important driver of current landscape patterns in stand density.