This study was conducted to understand the mechanism of wheat yield decrease under drought stress and the role of CO2 in modulating physiological and metabolic drought effects. Wheat was grown under ambient and elevated CO2 (400 and 800 ppm, respectively), and plants were subjected to drought stress prior to anthesis. Photosynthetic rate (An), stomatal conductance (Gs), transpiration rate (E) and activities of carbohydrate metabolic enzymes were decreased in leaf and increased in spikes during drought. Total antioxidant potential (TAP) was decreased under drought both in leaf and spike. Grain yield parameters were again reduced under drought, while An, E and most of the yield traits were increased under elevated CO2. The number of grains spike-1 correlated positively with An, TAP and cell wall invertase activity, while it negatively correlated with ascorbate peroxidase, cell wall peroxidase and glutathione reductase activities in leaves. Thousand kernel weight positively correlated with leaf phosphoglucoisomerase and spike glucose-6-phosphate dehydrogenase activities. This indicates that elevated CO2 could boost CO2 assimilation through an increase in antioxidant potential and facilitate more photosynthate supply via various increased carbohydrate metabolic enzyme activities, and thus increases yield. This could be a possible mechanism of grain yield increase caused by elevated CO2.