1. The importance of symbiotic dinitrogen (N2) fixation in shaping the coupled nitrogen-carbon cycle is now known for most humid terrestrial ecosystems. However, whether N2 fixation can play a key role in the nitrogen and carbon budget of water-limited and seasonally dry ecosystems remains a mystery. 2. The maintenance of metabolically and physiologically costly symbiotic fixation in water-limited environments is highly complex. These costs are particularly high during the first developmental season, when allocation to deep rooting and drought-resistance mechanisms is essential for seedling survival of prolonged seasonal drought. 3. We therefore evaluated how drought-adapted legume species change their allocation to symbiotic nitrogen fixation as a function of soil nitrogen availability. We tested this on seedlings of a suite of four common Mediterranean legume shrubs with a strong seasonal behavior, which we grew under controlled nitrogen and phosphorus availabilities. We asked: (1) Do species differ in their investment and regulation of nitrogen fixation? (2) Is fixation regulated via plant allocation to nodules, fixation rate, or both? and (3) Does phosphorus availability limit symbiotic nitrogen fixation? 4. All Mediterranean perennial legumes in the experiment established and grew nodulated and fixed nitrogen, even under severe nitrogen limitation. The four species reacted similarly to nitrogen supply, by strongly downregulating fixation through both decreased nodulation and lower rate of fixation. However, we found a significant inter-specific difference in fixation (both nodulation and rate), biomass production and growth rate. Our experimental species presented a range of fixation investment strategies corresponding to life history and resource partitioning patterns. Phosphorus limitation had a minor influence on both fixation and plant growth. 5. Synthesis: the high physiological cost of symbiotic fixation imposes the need to tightly regulate fixation in perennial legumes coping with severe water stress and seasonal conditions. Control of fixation allows legume species to colonize recently disturbed nitrogen-deficient habitats, cope with grazing, survive long seasonal droughts and recover nitrogen fixation latter in the wet season, and survive over time by reducing nitrogen inputs to the ecosystem.