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Future changes in climate, together with rising atmospheric <mml:math xmlns:mml="http://www.w3.org/1998/Math/MathML"> <mml:semantics> <mml:mrow> <mml:mrow><mml:msub><mml:mtext>CO</mml:mtext> <mml:mn>2</mml:mn></mml:msub> </mml:mrow> </mml:mrow> <mml:annotation><math altimg="urn:x-wiley:01407791:media:pce15042:pce15042-math-0001" wiley:location="equation/pce15042-math-0001.png" display="inline" xmlns="http://www.w3.org/1998/Math/MathML"><mrow><mrow><msub><mtext>CO</mtext><mn>2</mn></msub></mrow></mrow></math></mml:annotation></mml:semantics> </mml:math> , may reorganise the functional composition of ecosystems. Without long-term historical data, predicting how traits will respond to environmental conditions-in particular, water availability-remains a challenge. While eco-evolutionary optimality theory (EEO) can provide insight into how plants adapt to their environment, EEO approaches to date have been formulated on the assumption that plants maximise carbon gain, which omits the important role of tissue construction and size in determining growth rates and fitness. Here, we show how an expanded optimisation framework, focussed on individual growth rate, enables us to explain shifts in four key traits: leaf mass per area, sapwood area to leaf area ratio (Huber value), wood density and sapwood-specific conductivity in response to soil moisture, atmospheric aridity, <mml:math xmlns:mml="http://www.w3.org/1998/Math/MathML"> <mml:semantics> <mml:mrow> <mml:mrow><mml:msub><mml:mtext>CO</mml:mtext> <mml:mn>2</mml:mn></mml:msub> </mml:mrow> </mml:mrow> <mml:annotation><math altimg="urn:x-wiley:01407791:media:pce15042:pce15042-math-0002" wiley:location="equation/pce15042-math-0002.png" display="inline" xmlns="http://www.w3.org/1998/Math/MathML"><mrow><mrow><msub><mtext>CO</mtext><mn>2</mn></msub></mrow></mrow></math></mml:annotation></mml:semantics> </mml:math> and light availability. In particular, we predict that as conditions become increasingly dry, height-growth optimising traits shift from resource-acquisitive strategies to resource-conservative strategies, consistent with empirical responses across current environmental gradients of rainfall. These findings can explain both the shift in traits and turnover of species along existing environmental gradients and changing future conditions and highlight the importance of both carbon assimilation and tissue construction in shaping the functional composition of vegetation across climates.