Both low soil water content (SWC) and high atmospheric dryness (vapor pressure deficit, VPD) can negatively affect terrestrial gross primary production (GPP). The sensitivity of GPP to soil versus atmospheric dryness is difficult to disentangle, however, because of their covariation. Using global eddy-covariance observations, here we show that a decrease in SWC is not universally associated with GPP reduction. GPP increases in response to decreasing SWC when SWC is high and decreases only when SWC is below a threshold. By contrast, the sensitivity of GPP to an increase of VPD is always negative across the full SWC range. We further find canopy conductance decreases with increasing VPD (irrespective of SWC), and with decreasing SWC on drier soils. Maximum photosynthetic assimilation rate has negative sensitivity to VPD, and a positive sensitivity to decreasing SWC when SWC is high. Earth System Models underestimate the negative effect of VPD and the positive effect of SWC on GPP such that they should underestimate the GPP reduction due to increasing VPD in future climates.