Mediterranean ecosystems face threats from both climate change and shrub invasion. As shrub cover increases, competition for water intensifies, exacerbating the negative effects of drought on ecosystem functioning. However, research into the combined effects of drought and shrub invasion on tree carbon assimilation has been limited. We used a Mediterranean cork oak (Quercus suber) woodland to investigate the effects of drought and shrub invasion by gum rockrose (Cistus ladanifer) on cork oak carbon assimilation and photosynthetic capacity. We established a factorial experiment of imposed drought (ambient and rain exclusion) and shrub invasion (invaded and non-invaded) and measured leaf water potential, stomatal conductance and photosynthesis as well as photosynthetic capacity in cork oak and gum rockrose over one year. We observed distinct detrimental effects of gum rockrose shrub invasion on the physiological responses of cork oak trees throughout the study period. Despite the imposed drought, the impact of shrub invasion was more pronounced, resulting in significant photosynthetic capacity reduction of 57% during summer. Stomatal and non-stomatal limitations were observed under moderate drought in both species. Our findings provide significant knowledge on the impact of gum rockrose invasion on the functioning of cork oak and can be used to improve the representation of photosynthesis in terrestrial biosphere models.