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ABSTRACT Water availability is the most important factor determining tree species distribution in the tropics, but the underlying mechanisms are still not clear. In this study, we compared functional traits of 38 tropical tree species from dry and moist forest, and quantified their ability to survive drought in a dry‐down experiment in which wilting and survival were monitored. We evaluated how seedling traits affect drought survival, and how drought survival determines species distribution along the rainfall gradient. Dry forest species tended to have compound leaves, high stem dry matter content (stem dry mass/fresh mass), and low leaf area ratio, suggesting that reduction of transpiration and avoidance of xylem cavitation are important for their success. Three functional groups were identified based on the seedling traits: (1) drought avoiders with a deciduous leaf habitat and taproots; (2) drought resisters with tough tissues ( i.e. , a high dry matter content); and (3) light‐demanding moist forest species with a large belowground foraging capacity. Dry forest species had a longer drought survival time (62 d) than moist forest species (25 d). Deciduousness explained 69 percent of interspecific variation in drought survival. Among evergreen species, stem density explained 20 percent of the drought survival. Drought survival was not related to species distribution along the rainfall gradient, because it was mainly determined by deciduousness, and species with deciduous seedlings are found in both dry and moist forests. Among evergreen species, drought survival explained 28 percent of the variation in species position along the rainfall gradient. This suggests that, apart from drought tolerance, other factors such as history, dispersal limitation, shade tolerance, and fire shape species distribution patterns along the rainfall gradient.