Stable carbon isotope ratios (δ13C) in tree rings have been widely used to study changes in intrinsic water-use efficiency (iWUE), sometimes with limited consideration of how C-isotope discrimination is affected by tree height and canopy position. Our goals were to quantify the relationships between tree size or tree microenvironment and wood δ13C for eight functionally diverse temperate tree species in northern New England and to better understand the physical and physiological mechanisms underlying these differences. We collected short increment cores in closed-canopy stands and analyzed δ13C in the most recent 5 years of growth. We also sampled saplings in both shaded and sun-exposed environments. In closed-canopy stands, we found strong tree-size effects on δ13C, with 3.7-7.2‰ of difference explained by linear regression vs height (0.11-0.28‰ m-1), which in some cases is substantially stronger than the effect reported in previous studies. However, open-grown saplings were often isotopically more similar to large codominant trees than to shade-grown saplings, indicating that light exposure contributes more to the physiological and isotopic differences between small and large trees than does height. We found that in closed-canopy forests, δ13C correlations with diameter at breast height were nonlinear but also strong, allowing a straightforward procedure to correct tree- or stand-scale δ13C-based iWUE chronologies for changing tree size. We demonstrate how to use such data to correct and interpret multi-decadal composite isotope chronologies in both shade-regenerated and open-grown tree cohorts, and we highlight the importance of understanding site history when interpreting δ13C time series.