Biological soil crusts (BSC) are the dominant functional vegetation unit in some of the harshest habitats in the world. We assessed BSC response to stress through changes in biotic composition, CO2 gas exchange and carbon allocation in three lichen-dominated BSC from habitats with different stress levels, two more extreme sites in Antarctica and one moderate site in Germany. Maximal net photosynthesis (NP) was identical, whereas the water content to achieve maximal NP was substantially lower in the Antarctic sites, this apparently being achieved by changes in biomass allocation. Optimal NP temperatures reflected local climate. The Antarctic BSC allocated fixed carbon (tracked using (14)CO2) mostly to the alcohol soluble pool (low-molecular weight sugars, sugar alcohols), which has an important role in desiccation and freezing resistance and antioxidant protection. In contrast, BSC at the moderate site showed greater carbon allocation into the polysaccharide pool, indicating a tendency towards growth. The results indicate that the BSC of the more stressed Antarctic sites emphasise survival rather than growth. Changes in BSC are adaptive and at multiple levels and we identify benefits and risks attached to changing life traits, as well as describing the ecophysiological mechanisms that underlie them.