Over the past decade, the concept of isohydry or anisohydry, which describes the link between soil water potential (ΨS), leaf water potential (ΨL), and stomatal conductance (gs), has soared in popularity. However, its utility has recently been questioned, and a surprising lack of coordination between the dynamics of ΨL and gs across biomes has been reported. Here, we offer a more expanded view of the isohydricity concept that considers effects of vapour pressure deficit (VPD) and leaf area index (AL) on the apparent sensitivities of ΨL and gs to drought. After validating the model with tree‐ and ecosystem‐scale data, we find that within a site, isohydricity is a strong predictor of limitations to stomatal function, though variation in VPD and leaf area, among other factors, can challenge its diagnosis. Across sites, the theory predicts that the degree of isohydricity is a good predictor of the sensitivity of gs to declining soil water in the absence of confounding effects from other drivers. However, if VPD effects are significant, they alone are sufficient to decouple the dynamics of ΨL and gs entirely. We conclude with a set of practical recommendations for future applications of the isohydricity framework within and across sites.