Water stress is one of the most important limiting factors controlling terrestrial primary production, and the performance of a primary production model is largely determined by its capacity to capture environmental water stress. The algorithm that generates the global near-real-time MODIS GPP/NPP products (MOD17) uses VPD (vapor pressure deficit) alone to estimate the environmental water stress. This paper compares the water stress calculation in the MOD17 algorithm with results simulated using a process-based biogeochemical model (Biome-BGC) to evaluate the performance of the water stress determined using the MOD17 algorithm. The investigation study areas include China and the conterminous United States because of the availability of daily meteorological observation data. Our study shows that VPD alone can capture interannual variability of the full water stress nearly over all the study areas. In wet regions, where annual precipitation is greater than 400 mm/yr, the VPD-based water stress estimate in MOD17 is adequate to explain the magnitude and variability of water stress determined from atmospheric VPD and soil water in Biome-BGC. In some dry regions, where soil water is severely limiting, MOD17 underestimates water stress, overestimates GPP, and fails to capture the intraannual variability of water stress. The MOD17 algorithm should add soil water stress to its calculations in these dry regions, thereby improving GPP estimates. Interannual variability in water stress is simpler to capture than the seasonality, but it is more difficult to capture this interannual variability in GPP. The MOD17 algorithm captures interannual and intraannual variability of both the Biome-BGC-calculated water stress and GPP better in the conterminous United States than in the strongly monsoon-controlled China.