The uptake of carbon dioxide (CO2) from the atmosphere through photosynthesis is accompanied by an inevitable loss of water vapor through the stomata of leaves. The rate of leaf-level CO2 assimilation per unit stomatal conductance, i.e., intrinsic water-use efficiency (WUEi), is thus a key characteristic of terrestrial ecosystem functioning that is central to the global hydroclimate system. Empirical evidence and theory suggest a positive response of forest water-use efficiency to increased CO2 levels globally. Although evidence exists for a positive effect of ecosystem nitrogen (N) inputs on WUEi, it is not clear how trends in atmospheric N deposition have affected WUEi in the past. Here we combine twentieth-century climate and nitrogen deposition with stable isotope signature in tree rings and document a WUEi trend reversal at two sites in Switzerland, that matches the timing of a trend reversal in atmospheric N deposition. Using Generalized Additive Models, we fitted observed WUEi time series to multiple environmental covariates. This suggested N deposition to have a significant effect on long-term WUEi at the site that was exposed to higher N deposition levels. The ratio of the increase in WUEi in response to increase in CO2 (dWUEi/dCO2) declined by 96% after 1980 (from 0.53 to 0.02) in the beech forest and declined by 72% in the spruce forest (from 0.46 to 0.13) concurrent with a sharp decline in N deposition. Using the GAM model for two scenarios, we show that had N deposition levels not declined after 1980s, WUEi would have increased more strongly in response to increasing CO2. Although the increase in N deposition was limited to the 1950-1980 decades and the signals have declined with improvements in air quality across Europe, the role of atmospheric pollution must be reconsidered in interpretation of tree ring studies and for building environmental proxies that are pivotal to understanding future sink capacity of terrestrial ecosystems in response to climate change.