Just as a soggy paper straw is prone to yielding under the applied suction of a thirsty drinker, the xylem tracheids in leaves seem prone to collapse as water potential declines, impeding their function. Here we describe the collapse, under tension, of lignified cells peripheral to the leaf vein of a broad-leaved rainforest conifer, Podocarpus grayi de Laub. Leaves of Podocarpus are characterized by an array of cylindrical tracheids aligned perpendicular to the leaf vein, apparently involved in the distribution of water radially through the mesophyll. During leaf desiccation the majority of these tracheids collapsed from circular to flat over the water potential range 21.5 to 22.8 MPa. An increase in the percentage of tracheids collapsed during imposed water stress was mirrored by declining leaf hydraulic conductivity (Kleaf), implying a direct effect on water transport efficiency. Stomata responded to water stress by closing at 22.0 MPa when 45% of cells were collapsed and Kleaf had declined by 25%. This was still substantially before the initial indications of cavitation-induced loss of hydraulic conductance in the leaf vein, at 23 MPa. Plants droughted until 49% of tracheids had collapsed were found to fully recover tracheid shape and leaf function 1 week after rewatering. A simple mechanical model of tracheid collapse, derived from the theoretical buckling pressure for pipes, accurately predicted the collapse dynamics observed in P. grayi, substantiating estimates of cell wall elasticity and measured leaf water potential. The possible adaptive advantages of collapsible vascular tissue are discussed.