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Despite the need for researchers to understand terrestrial biospheric carbon fluxes to account for carbon cycle feedbacks and predict future CO₂ concentrations, knowledge of these fluxes at the regional scale remains poor. This is particularly true in mountainous areas, where complex meteorology and lack of observations lead to large uncertainties in carbon fluxes. Yet mountainous regions are often where significant forest cover and biomass are found – i.e., areas that have the potential to serve as carbon sinks. As CO₂ observations are carried out in mountainous areas, it is imperative that they are properly interpreted to yield information about carbon fluxes. In this paper, we present CO₂ observations at three sites in the mountains of the western US, along with atmospheric simulations that attempt to extract information about biospheric carbon fluxes from the CO₂ observations, with emphasis on the observed and simulated diurnal cycles of CO₂. We show that atmospheric models can systematically simulate the wrong diurnal cycle and significantly misinterpret the CO₂ observations, due to erroneous atmospheric flows as a result of terrain that is misrepresented in the model. This problem depends on the selected vertical level in the model and is exacerbated as the spatial resolution is degraded, and our results indicate that a fine grid spacing of ∼ 4 km or less may be needed to simulate a realistic diurnal cycle of CO₂ for sites on top of the steep mountains examined here in the American Rockies. In the absence of higher resolution models, we recommend coarse-scale models to focus on assimilating afternoon CO₂ observations on mountaintop sites over the continent to avoid misrepresentations of nocturnal transport and influence.