SignificanceAerosol-cloud interaction affects the cooling of Earth's climate, mostly by activation of aerosols as cloud condensation nuclei that can increase the amount of sunlight reflected back to space. But the controlling physical processes remain uncertain in current climate models. We present a lidar-based technique as a unique remote-sensing tool without thermodynamic assumptions for simultaneously profiling diurnal aerosol and water cloud properties with high resolution. Direct lateral observations of cloud properties show that the vertical structure of low-level water clouds can be far from being perfectly adiabatic. Furthermore, our analysis reveals that, instead of an increase of liquid water path (LWP) as proposed by most general circulation models, elevated aerosol loading can cause a net decrease in LWP.