Inter-annual variability in total precipitation can lead to significant changes in carbon flux. In this study, we used the eddy covariance (EC) technique to measure the net CO₂ ecosystem exchange (NEE) of an alpine meadow in the northern Tibetan Plateau. In 2005 the meadow had precipitation of 489.9 mm and in 2006 precipitation of 241.1 mm, which, respectively, represent normal and dry years as compared to the mean annual precipitation of 476 mm. The EC measured NEE was 87.70 g C m^-2 yr^-1 in 2006 and –2.35 g C m^-2 yr^-1 in 2005. Therefore, the grassland was carbon neutral to the atmosphere in the normal year, while it was a carbon source in the dry year, indicating this ecosystem will become a CO₂ source if climate warming results in more drought conditions. The drought conditions in the dry year limited gross ecosystem CO₂ exchange (GEE), leaf area index (LAI) and the duration of ecosystem carbon uptake. During the peak of growing season the maximum daily rate of NEE and P_max and α were approximately 30%–50% of those of the normal year. GEE and NEE were strongly related to photosynthetically active radiation (PAR) on half-hourly scale, but this relationship was confounded by air temperature (T_a), soil water content (SWC) and vapor pressure deficit (VPD). The absolute values of NEE declined with higher T_a, higher VPD and lower SWC conditions. Beyond the appropriate range of PAR, high solar radiation exacerbated soil water conditions and thus reduced daytime NEE. Optimal T_a and VPD for maximum daytime NEE were 12.7°C and 0.42 KPa respectively, and the absolute values of NEE increased with SWC. Variation in LAI explained around 77% of the change in GEE and NEE. Variations in R_e were mainly controlled by soil temperature (T_s), whereas soil water content regulated the responses of R_e to T_s.