Leaf properties vary significantly within plant canopies, due to the strong gradient in light availability through the canopy, and the need for plants to use resources efficiently. At high light, photosynthesis is maximized when leaves have a high nitrogen content and water supply, whereas at low light leaves have a lower requirement for both nitrogen and water. Studies of the distribution of leaf nitrogen (N) within canopies have shown that, if water supply is ignored, the optimal distribution is that where N is proportional to light, but that the gradient of N in real canopies is shallower than the optimal distribution. We extend this work by considering the optimal co-allocation of nitrogen and water supply within plant canopies. We developed a simple 'toy' two-leaf canopy model and optimized the distribution of N and hydraulic conductance (K) between the two leaves. We asked whether hydraulic constraints to water supply can explain shallow N gradients in canopies. We found that the optimal N distribution within plant canopies is proportional to the light distribution only if hydraulic conductance, K, is also optimally distributed. The optimal distribution of K is that where K and N are both proportional to incident light, such that optimal K is highest to the upper canopy. If the plant is constrained in its ability to construct higher K to sun-exposed leaves, the optimal N distribution does not follow the gradient in light within canopies, but instead follows a shallower gradient. We therefore hypothesize that measured deviations from the predicted optimal distribution of N could be explained by constraints on the distribution of K within canopies. Further empirical research is required on the extent to which plants can construct optimal K distributions, and whether shallow within-canopy N distributions can be explained by sub-optimal K distributions.