Fan life forms are bryophytes with shoots rising from vertical substratum that branch repeatedly in the horizontal plane to form flattened photosynthetic surfaces, which are well suited for intercepting water from moving air. However, detailed water relations, gas exchange characteristics of fan bryophytes and their adaptations to particular microhabitats remain poorly understood. In this study, we measured and analyzed microclimatic data, as well as water release curves, pressure-volume relationships and photosynthetic water and light response curves for three common fan bryophytes in an Asian subtropical montane cloud forest (SMCF). Results demonstrate high relative humidity but low light levels and temperatures in the understory, and a strong effect of fog on water availability for bryophytes in the SMCF. The facts that fan bryophytes in dry air lose most of their free water within 1 h, and a strong dependence of net photosynthesis rates on water content, imply that the transition from a hydrated, photosynthetically active state to a dry, inactive state is rapid. In addition, fan bryophytes developed relatively high cell wall elasticity and the osmoregulatory capacity to tolerate desiccation. These fan bryophytes had low light saturation and compensation point of photosynthesis, indicating shade tolerance. It is likely that fan bryophytes can flourish on tree trunks in the SMCF because of substantial annual precipitation, average relative humidity, and frequent and persistent fog, which can provide continual water sources for them to intercept. Nevertheless, the low water retention capacity and strong dependence of net photosynthesis on water content of fan bryophytes indicate a high risk of unbalanced carbon budget if the frequency and severity of drought increase in the future as predicted.