Understanding the underlying processes that control the carbon cycle is key to predicting future global change. Much of the uncertainty in the magnitude and variability of the atmospheric carbon dioxide (CO2) stems from uncertainty in terrestrial carbon fluxes, and the relative impacts of temperature and moisture variations on regional and global scales are poorly understood. Here we investigate the impact of a regional drought on terrestrial carbon fluxes and CO2 mixing ratios over North America using the NASA Goddard Earth Observing System (GEOS) Model. Results show a sequence of changes in carbon fluxes and atmospheric CO2, induced by the drought. The relative contributions of meteorological changes to the neighboring carbon dynamics are also presented. The coupled modeling approach allows a direct quantification of the impact of the regional drought on local and proximate carbon exchange at the land surface via the carbon-water feedback processes.