Anthropogenic climate change is expected to alter both the frequency and size of rainfall events. Our results suggest that this will likely affect the net carbon balance of semi-arid grasslands. Net ecosystem carbon dioxide (CO₂) exchange (NEE) was measured on shortgrass steppe (SGS) vegetation in northeastern Colorado. As expected, nighttime NEE was positive (CO₂ source) throughout the year and daytime NEE was positive during the non-growing season. But during the growing season, daytime NEE could be positive or negative (CO₂ sink), depending on the size of precipitation events in this water limited system.  Large precipitation events (> 10 mm day^-1) promoted carbon uptake because increased soil water content in sub-surface layers promoted plant photosynthesis, while small precipitation events (5 - 10 mm day^-1) that only wet the surface soil enhanced heterotrophic respiration and resulted in a loss of carbon from the system. Although the growing season extends from April - October, more than 95% of the net carbon uptake occurred during the April - June time period. Live aboveground plant biomass, solar radiation, and soil water content were the major variables that controlled daytime net CO₂ uptake and nighttime respiration losses.