Elevated atmospheric CO2 concentrations are expected to enhance photosynthesis and reduce stomatal conductance, thus increasing plant water use efficiency. A recent study based on eddy covariance flux observations from Northern Hemisphere forests showed a large increase in inherent water use efficiency (IWUE). Here we used an updated version of the same data set and robust uncertainty quantification to revisit these contemporary IWUE trends. We tested the hypothesis that the observed IWUE increase could be attributed to interannual trends in plant functional traits, potentially triggered by environmental change. We found that IWUE increased by ~1.3% yr−1, which is less than previously reported but still larger than theoretical expectations. Numerical simulations with the Tethys-Chloris ecosystem model using temporally static plant functional traits cannot explain this increase. Simulations with plant functional trait plasticity, i.e., temporal changes in model parameters such as specific leaf area and maximum Rubisco capacity, match the observed trends in IWUE. Our results show that trends in plant functional traits, equal to 1.0% yr−1, can explain the observed IWUE trends. Thus, at decadal or longer time scales, trait plasticity could potentially influence forest water, carbon, and energy fluxes with profound implications for both the monitoring of temporal changes in plant functional traits and their representation in Earth system models.