The physiological acclimation of Taxodium hybrid ‘zhongshanshan 118’ (T.118) plants to a progressive drought stress and drought-stressed to recovery treatment (DS-R) was investigated in this study. Plants of control (C) treatment were watered daily throughout the experiment. Results indicated that water deficit reduced stomatal conductance (gS) to improve water use efficiency (WUE) and, as a consequence, net photosynthetic rate (Pn), transpiration rate (Tr), and intercellular CO2 concentration (Ci) were also decreased in DS-R T.118 plants compared with C plants. These reductions became more significant with decreasing soil water availability. Correlation analysis showed gS was positively correlated (P < 0.01) with the soil water content as well as leaf relative water content (RWC). There was a tendency to accumulate proline, malondialdehyde (MDA), antioxidases, and membrane electrolyte leakage as stress intensity increased. Moreover, drought stress induced significant (P < 0.05) decline in total chlorophyll contents (Chlt) and increase of nonphotochemical quenching (NPQ) on day 8 as a photo-protective mechanism. Cluster analysis distinguished the adaption of T.118 plants to water deficit in two ways. First, photosynthesis was related to thermal dissipation, and second antioxidation was related to morphology and osmosis. Furthermore, tested parameters showed a reversed tendency and restored equivalently to C levels after 9 days of rewatering. These findings suggest that T.118 plants demonstrated considerable tolerance to short-term drought stress and recovery due to a high degree of plasticity in physiological acclimation.