Wood in service is sequestering carbon, but it is principally prone to deterioration where different fungi metabolize wood, and carbon dioxide is released back to the atmosphere. A key prerequisite for fungal degradation of wood is the presence of moisture. Conversely, keeping wood dry is the most effective way to protect wood from wood degradation and for long-term binding of carbon. Wood is porous and hygroscopic; it can take up water in liquid and gaseous form, and water is released from wood through evaporation following a given water vapour pressure gradient. During the last decades, the perception of wood-water relationships changed significantly and so did the view on moisture-affected properties of wood. Among the latter is its susceptibility to fungal decay. This paper reviews findings related to wood-water relationships and their role for fungal wood decomposition. These are complex interrelationships not yet fully understood, and current knowledge gaps are therefore identified. Studies with chemically and thermally modified wood are included as examples of fungal wood substrates with altered moisture properties. Quantification and localization of capillary and cell wall water - especially in the over-hygroscopic range - is considered crucial for determining minimum moisture thresholds (MMThr) of wood-decay fungi. The limitations of the various methods and experimental set-ups to investigate wood-water relationships and their role for fungal decay are manifold. Hence, combining techniques from wood science, mycology, biotechnology and advanced analytics is expected to provide new insights and eventually a breakthrough in understanding the intricate balance between fungal decay and wood-water relations.