Soybean genotypes show diverse physiological responses to drought, but specific physiological traits that can be used to evaluate drought tolerance have not been identified. In the present study we investigated physiological traits of soybean genotypes under progressive soil drying and rewetting, using a treatment mimicking field conditions. After a preliminary study with eight soybean genotypes, two drought-tolerant genotypes and one susceptible genotype were grown in the greenhouse and subjected to water restriction. Leaf expansion rate, gas exchange, water relation parameters, total chlorophyll (Chl), proline contents of leaves, and root xylem pH were monitored in a time course, and plant growth and root traits were measured at the end of the stress cycle. Drought-tolerant genotypes maintained higher leaf expansion rate, net photosynthetic rate (Pn), Chl content, instantaneous water use efficiency (WUEi), % relative water content (RWC), water potential (ψw), and turgor potential (ψp) during progressive soil drying and subsequent rewetting than the susceptible genotypes. By contrast, stomatal conductance (gs) and transpiration rate (Tr) of tolerant genotypes declined faster owing to dehydration and recovered more sharply after rehydration than the same parameters in susceptible ones. Water stress caused a significant increase in leaf proline level and root xylem sap pH of both genotypes but tolerant genotypes recovered to pre-stress levels more quickly after rehydration. Tolerant genotypes also produced longer roots with higher dry mass than susceptible genotypes. We conclude that rapid perception and adjustment in response to soil drying and rewetting as well as the maintenance of relatively high Pn, %RWC, and root growth constitute the mechanisms by which drought-tolerant soybean genotypes cope with water stress.