We present a bottom-up approach to simulate the terrestrial isotopic carbon variations using the Lund-Potsdam-Jena dynamic global vegetation model (LPJ-DGVM). LPJ is extended to include isotopic fractionation of C-13 at the leaf level during assimilation and includes a full isotopic terrestrial carbon cycle. The model thus allows a quantitative analysis of the net biosphere exchange of CO2 and (CO2)-C-13 with the atmosphere as a function of changes in climate, atmospheric CO2, and the isotope ratio of CO2. LPJ simulates a global mean isotopic fractionation of 17.7% at the leaf level with interannual variations of ca. 0.3%. Interannual variability in the net (CO2)-C-13 flux between atmosphere and terrestrial biosphere is of the order of 15 PgC% yr(-1). It is reduced to 4 PgC% yr(-1) if the leaf-level fractionation factor is held constant at the long term mean. Taking climate driven variable fractionation effects into account in double deconvolution studies we estimate that this could imply shifts of up to 0.8 PgC yr(-1) in the inferred partitioning between terrestrial and oceanic carbon sinks.