While stomatal closure usually limits photosynthesis during drought, our previous results suggest that drought-related decreases in foliar nitrogen concentration (NL) limit photosynthesis during recovery from drought in prairie grasses. Here we estimate the importance of decreases in NL to decreased photosynthetic capacity (PScap) during drought and a subsequent recovery period in three perennial C4 prairie grasses. PScap (O2 evolution at light and CO2 saturation) decreased 69 to 78% during drought in these grasses, and full recovery of PScap required 8 to 12 days, until younger leaves were expanded or older leaves were repaired, depending on species. Decreases in NL explained 38 to 51% of the loss of PScap during drought and accounted for 51 to 69% of the total loss of PScap integrated over the post-drought recovery period. N-related loss of PScap appeared to result more from decreases in ribulose-1,5-bisphosphate carboxylase/oxygenase (EC 4.1.1.39), phosphoenolpyruvate carboxylase (4.1.1.31), and other soluble photosynthetic enzymes, than from decreases in thylakoid N-containing compounds. Decreases in quantum yield of O2 evolution and Fv/Fm (variable-to-maximum fluorescence of dark-adapted leaves) during drought were small, so we assumed that little damage to photsystem II (PSII) and thylakoid membrane function occurred. Further, F0 (minimum F) decreased or remained unchanged, dark F0 was greater than light F0, and decreases in photochemical quenching (the fraction of oxidized PSII) were reversed within 1–3 days after drought. Therefore, prolonged increases in non-photochemical quenching (qn; thermal dissipation of excess light energy) during and after drought were indicative of protective downregulation and were likely associated with disproportionate loss of soluble photosynthetic proteins during drought. In support of this, post-drought recovery of qn paralleled recovery of NL and PScap. Thus, in C4 prairie grasses, loss of PScap during drought is largely the result of decreases in shoot NL and of associated protective downregulation, decreasing carbon assimilation for 1–2 weeks after drought.