In remote sensing applications, leaf traits are often upscaled to canopy level using sunlit leaf samples collected from the upper canopy. The implicit assumption is that the top of canopy foliage material dominates canopy reflectance and the variability in leaf traits across the canopy is very small. However, the effect of different approaches of upscaling leaf traits to canopy level on model performance and estimation accuracy remains poorly understood. This is especially important in short or sparse canopies where foliage material from the lower canopy potentially contributes to the canopy reflectance. The principal aim of this study is to examine the effect of different approaches when upscaling leaf traits to canopy level on model performance and estimation accuracy using spectral measurements (in-situ canopy hyperspectral and simulated Sentinel-2 data) in short woody vegetation. To achieve this, we measured foliar nitrogen (N), leaf mass per area (LMA), foliar chlorophyll and carbon together with leaf area index (LAI) at three vertical canopy layers (lower, middle and upper) along the plant stem in a controlled laboratory environment. We then upscaled the leaf traits to canopy level by multiplying leaf traits by LAI based on different combinations of the three canopy layers. Concurrently, in-situ canopy reflectance was measured using an ASD FieldSpec-3 Pro FR spectrometer, and the canopy traits were related to in-situ spectral measurements using partial least square regression (PLSR). The PLSR models were cross-validated based on repeated k-fold, and the normalized root mean square errors (nRMSEcv) obtained from each upscaling approach were compared using one-way analysis of variance (ANOVA) followed by Tukey’s post hoc test. Results of the study showed that leaf-to-canopy upscaling approaches that consider the contribution of leaf traits from the exposed upper canopy layer together with the shaded middle canopy layer yield significantly (p < 0.05) lower error (nRMSEcv < 0.2 for canopy N, LMA and carbon) as well as high explained variance (R2 > 0.71) for both in-situ hyperspectral and simulated Sentinel-2 data. The widely-used upscaling approach that considers only leaf traits from the upper illuminated canopy layer yielded a relatively high error (nRMSEcv>0.2) and lower explained variance (R2 < 0.71) for canopy N, LMA and carbon. In contrast, canopy chlorophyll upscaled based on leaf samples collected from the upper canopy and total canopy LAI exhibited a more accurate relationship with spectral measurements compared with other upscaling approaches. Results of this study demonstrate that leaf to canopy upscaling approaches have a profound effect on canopy traits estimation for both in-situ hyperspectral measurements and simulated Sentinel-2 data in short woody vegetation. These findings have implications for field sampling protocols of leaf traits measurement as well as upscaling leaf traits to canopy level especially in short and less foliated vegetation where leaves from the lower canopy contribute to the canopy reflectance.