The Australian grass subtribe Neurachninae contains closely related species that use C 3 , C 4 , and C 2 photosynthesis. To gain insight into the evolution of C 4 photosynthesis in grasses, we examined leaf gas exchange, anatomy and ultrastructure, and tissue localization of Gly decarboxylase subunit P (GLDP) in nine Neurachninae species. We identified previously unrecognized variation in leaf structure and physiology within Neurachne that represents varying degrees of C 3 -C 4 intermediacy in the Neurachninae. These include inverse correlations between the apparent photosynthetic carbon dioxide (CO 2 ) compensation point in the absence of day respiration (C * ) and chloroplast and mitochondrial investment in the mestome sheath (MS), where CO 2 is concentrated in C 2 and C 4 Neurachne species; width of the MS cells; frequency of plasmodesmata in the MS cell walls adjoining the parenchymatous bundle sheath; and the proportion of leaf GLDP invested in the MS tissue. Less than 12% of the leaf GLDP was allocated to the MS of completely C 3 Neurachninae species with C * values of 56-61 mmol mol 21 , whereas twothirds of leaf GLDP was in the MS of Neurachne lanigera, which exhibits a newly-identified, partial C 2 phenotype with C * of 44 mmol mol 21 . Increased investment of GLDP in MS tissue of the C 2 species was attributed to more MS mitochondria and less GLDP in mesophyll mitochondria. These results are consistent with a model where C 4 evolution in Neurachninae initially occurred via an increase in organelle and GLDP content in MS cells, which generated a sink for photorespired CO 2 in MS tissues. 566