We show that photochemical processes in the lower half of the troposphere are strongly affected by the presence of liquid water clouds. Especially CH20, an important intermediate of CH~ (and of other hydrocarbon) oxidation, is subject to enhanced breakdown in the aqueous phase. This reduces the formation of HOx-radicals via photodissociation of CH20 in the gas phase. In the droplets, the hydrated form of CH20, its oxidation product HCOg, and H202 recycle 02 radicals which, in turn, react with ozone. We show that the latter reaction is a significant sink for O~. Further O3 concentrations are reduced as a result of decreased formation of 03 during periods with clouds, Additionally, NO X, which acts as a catalyst in the photochemical formation of 03, is depleted by clouds during the night via scavenging of NzO 5. This significantly reduces NOx-concentrations during subsequent daylight hours, so that less NO, is available for O3 production. Clouds thus directly reduce the concentrations of O3, CH,O, NOx, and HO~. Indirectl}, this also affects the budgets of other trace gases, such as H202, CO, and H2.