In the developing xylem bundles of young stems, the presence of immature living vessel elements can strongly restrict or even block axial hydraulic conductance, especially in newly matured vessels. Lateral connections between vessels may provide an alternative pathway for water movement to bypass these closed, living elements. Using the grapevine as a model system, the present study aimed to demonstrate the effects of living vessel elements on water movement patterns, and the importance of lateral flow for effective water conductivity in the developing bundles. Living vessel elements were detected using dye staining and the pattern of vessel development and maturation was then monitored. The importance of lateral flow was confirmed using several approaches: (1) capacity for lateral flow, (2) effect of increasing the distance of water transport, and (3) effect of ion concentrations. Living vessel elements were found along the developing bundles, they occupied a significant proportion of the distal and peripheral parts of the flow path, forming a substantial barrier to apoplastic water flow. Water in the developing xylem bundles could move easily from vessel to vessel and between secondary and primary xylem. Furthermore, data from increasing the transport length and altering the ion concentrations supported the critical contribution of the lateral flow to the total hydraulic conductance within the developing bundles. The hydraulic architecture of the developing xylem bundles is described. The results are discussed in terms of reliability and efficiency of water transport during shoot growth and development.