In view of the increase in global warming and carbon dioxide (CO2) concentrations, it is essential to investigate the influences of climate change on plant growth and water use in arid and semi‐arid grassland species. Experiments were conducted to understand the ecophysiological response of four indigenous species to elevated CO2 in the semi‐arid sandy grassland of central Inner Mongolia. Seedlings of the four species were grown for 8 weeks at four different consistently elevated CO2 concentrations in the environment‐controlled growth chambers. All four elevated CO2 concentrations (400, 800, 1200, 1600 ppm) were found to result in decreased stomatal conductance (26–86%), decreased transpiration rate (21–80%), increased shoot water potential (1–42%) and increased water use efficiency (WUE) (10–412%) for two Artemisia species and Caragana korshinskii. Under our experimental conditions, the two Artemisia species and C. korshinskii would benefit more than Hedysarum laeve from exposure to elevated CO2 in terms of higher shoot water potential and WUE combined with lower stomatal conductance and transpiration rate. The results indicate that in a warmer, CO2‐enriched future atmospheric environment, WUE in semi‐arid grasslands may be higher than previously expected. Our findings will provide information for screening appropriate species for restoration of the degraded sandy grasslands in semi‐arid areas under future climate change scenarios.