Land ecosystems absorb on average 30 per cent of anthropogenic carbon dioxide (CO2) emissions, thereby slowing the increase of CO2 concentration in the atmosphere(1). Year-to-year variations in the atmospheric CO2 growth rate are mostly due to fluctuating carbon uptake by land ecosystems(1). The sensitivity of these fluctuations to changes in tropical temperature has been well documented(2-6), but identifying the role of global water availability has proved to be elusive. So far, the only usable proxies for water availability have been time-lagged precipitation anomalies and drought indices(3-5), owing to a lack of direct observations. Here, we use recent observations of terrestrial water storage changes derived from satellite gravimetry(7) to investigate terrestrial water effects on carbon cycle variability at global to regional scales. We show that the CO2 growth rate is strongly sensitive to observed changes in terrestrial water storage, drier years being associated with faster atmospheric CO2 growth. We demonstrate that this global relationship is independent of known temperature effects and is underestimated in current carbon cycle models. Our results indicate that interannual fluctuations in terrestrial water storage strongly affect the terrestrial carbon sink and highlight the importance of the interactions between the water and carbon cycles.