Acacia caven (Mol.) Mol. (Leguminosae), generally known as "espino," is one of the most common tree species in the Mediterranean region of Chile. This species grows in nutritionally poor soils with low water availability during the summer, so it is very difficult for new seedlings to become established. To investigate the effects of water restriction and the potential benefit of the application of biosolids (sludge bio-dried to 25% moisture) on the growth of the plant, a completely random, two x three factorial design was carried out in controlled nursery conditions under two irrigation regimes (well-watered plants and controlled water restriction) and three biosolid application rates (0:100, 10:90 and 20:80) in a clay substrate. Physiological evaluations (predawn water potential, photosynthesis and gas exchange) were performed at representative times along the water restriction gradients and supplemented with measurements of growth and biomass distribution. Once plants entered the water restriction phase, those in the biosolid-treated substrate exhibited better hydration compared to plants in the untreated substrate. This was attributed to the increased organic matter content as well as to changes in the textural characteristics of the original substrate that increased its capacity to deliver water to the plants. Additionally, the application of biosolids promoted shoot and leaf growth in well-watered plants, increasing the shoot:root ratio, which could be a disadvantage under water stress.