The response of net photosynthesis, dark respiration and acetylene reduction to temperature, moisture and light intensity were examined for Stereocaulon virgatum growing in the cloud/shroud zone on the tropical volcano La Soufrière, Guadeloupe, French West Indies. Rates for both acetylene reduction and net photosynthesis were maximal at saturating water contents, a pattern attributed to the finely branched nature of the phyllocladoid branchlets and the exposed position of spherical cephalodia, both of which minimize the formation of surface and interhyphal water films. Under conditions typical of those during cloud/shroud periods (13–16°C), thalli of S. virgatum exhibit many characteristics seen in other shade-tolerant lichen species. Net photosynthesis was light saturated at 300 μmol m−2 s−1 PAR, while the photocompensation point was less than 25 µmol m−2 s−1 PAR. Net photosynthetic uptake of carbon dioxide was optimal at 27–34°C, at which point light saturation was near 700 µmol m−2 s−1 PAR and the photocompensation point between 50 and 100 µmol m−2 s−1 PAR. Thalli of S. virgatin exhibited temperature-dependent sensitivity to high insolation. Only at 20°C were thalli able to tolerate high light exposure without reduction of apparent quantum yield. Exposure to high light intensity at 40°C inhibited the apparent quantum yield by almost 40% and acetylene reduction by 95%. This suggests brief periods of insolation shock may exert an influence disproportionately higher than either their frequency or duration. Thalli are normally exposed to cloud/shroud conditions but net photosynthetic uptake was maximal only during periods of elevated thallus temperature experienced at the onset of an insolation shock. However, with prolonged high insolation exposure and further elevation of thallus temperatures and thallus desiccation, severe impairment of subsequent photosynthetic activity ensues. S. virgatum may be characterized as a shade-tolerant species but its physiology is more adapted in some respects to conditions experienced during rare periods of full insolation.