Stereocaulon virgatum Ach. has colonized lava flows deposited on the west flank of the volcano La Soufrière. The mean annual rate of acetylene reduction was 43·4 nmol C2H4 gdw−1 h−1 with maximum rates during the prevalent cloud/shroud meteorology of 101 and minimum rates during rare high insolation events of 0·63 nmol gdw−1 h−1. Percentage thallus moisture was the major variable controlling nitrogenase activity. During cloud/shroud conditions the upper 90% of the lichen canopy reduced 85% of the acetylene. Canopy shading reduced intra-canopy temperatures allowing the basal 10% of the canopy to fix nitrogen during insolation shocks. Basal portions of pseudopodetia exhibited reduced rates of ethylene production when exposed to canopy surface light intensities during cloud/shroud conditions. The recovery pattern of nitrogenase following desiccation during an insolation shock is presented. Rates of photosynthesis during cloud/shroud conditions were high, reaching 50% of those attained during saturating light intensities.