Rising ozone (O3) concentrations, coupled with an increase in drought frequency due to climate change, pose a threat to plant growth and productivity which could negatively affect carbon sequestration capacity of Northern Hemisphere (NH) forests. Using long-term observations of O3 mixing ratios and soil water content (SWC), we implemented empirical drought and O3 stress parameterizations in a coupled stomatal conductance–photosynthesis model to assess their impacts on plant gas exchange at three FLUXNET sites: Castelporziano, Blodgett and Hyytiälä. Model performance was evaluated by comparing model estimates of gross primary productivity (GPP) and latent heat fluxes (LE) against present-day observations. CMIP5 GCM model output data were then used to investigate the potential impact of the two stressors on forests by the middle (2041–2050) and end (2091–2100) of the 21st century. We found drought stress was the more significant as it reduced model overestimation of GPP and LE by ~11%–25% compared to 1%–11% from O3 stress. However, the best model fit to observations at all the study sites was obtained with O3 and drought stress combined, such that the two stressors counteract the impact of each other. With the inclusion of drought and O3 stress, GPP at CPZ, BLO and HYY is projected to increase by 7%, 5% and 8%, respectively, by mid-century and by 14%, 11% and 14% by 2091–2100 as atmospheric CO2 increases. Estimates were up to 21% and 4% higher when drought and O3 stress were neglected respectively. Drought stress will have a substantial impact on plant gas exchange and productivity, off-setting and possibly negating CO2 fertilization gains in future, suggesting projected increases in the frequency and severity of droughts in the NH will play a significant role in forest productivity and carbon budgets in future. © 2020 The Authors. Global Change Biology published by John Wiley & Sons Ltd