Spectral reflectance is a new, real time and non-destructive hyperspectral remote sensing application to monitor plant water status and physiological changes. The spectral reflectance responses induced by water stress reflect the interaction and coupling of carbon, nitrogen and water cycles. A majority of previous studies focused on a specific structural or physiological effect on spectral reflectance with little attention on their interactions. This paper reviewed and synthesized the direct and indirect spectral responses caused by changes in plant water content, pigments, nutrient status, photosynthesis and chlorophyll fluorescence indices and their internal association. This paper also discussed the common approaches and the new techniques in applying spectral reflectance for detecting water status and physiological activities in plants. This paper concluded that analysis of the spectral reflectance at multiple temporal or spatial scales might have a potential application in projecting vegetation productivities, particularly in the context of climate change.