The evolution of C4 photosynthesis in many taxa involves the establishment of a two-celled photorespiratory CO2 pump, termed C2 photosynthesis. How C3 species evolved C2 metabolism is critical to understanding the initial phases of C4 plant evolution. To evaluate early events in C4 evolution, we compared leaf anatomy, ultrastructure, and gas-exchange responses of closely related C3 and C2 species of Flaveria, a model genus for C4 evolution. We hypothesized that Flaveria pringlei and Flaveria robusta, two C3 species that are most closely related to the C2 Flaveria species, would show rudimentary characteristics of C2 physiology. Compared with less-related C3 species, bundle sheath (BS) cells of F. pringlei and F. robusta had more mitochondria and chloroplasts, larger mitochondria, and proportionally more of these organelles located along the inner cell periphery. These patterns were similar, although generally less in magnitude, than those observed in the C2 species Flaveria angustifolia and Flaveria sonorensis. In F. pringlei and F. robusta, the CO2 compensation point of photosynthesis was slightly lower than in the less-related C3 species, indicating an increase in photosynthetic efficiency. This could occur because of enhanced refixation of photorespired CO2 by the centripetally positioned organelles in the BS cells. If the phylogenetic positions of F. pringlei and F. robusta reflect ancestral states, these results support a hypothesis that increased numbers of centripetally located organelles initiated a metabolic scavenging of photorespired CO2 within the BS. This could have facilitated the formation of a glycine shuttle between mesophyll and BS cells that characterizes C2 photosynthesis.