AbstractSevere droughts increase physiological stress in woody plant species, which can lead to mortality, fundamentally altering the composition, structure, and biogeography of forests in many regions. Little is known, however, about the factors determining the physiological response of woody plants to drought at landscape scales. Our objective was to understand woody plant species responses to ongoing changes in climate, using remotely sensed canopy water content (CWC) as an indicator of plant physiological and phenological status. We used fused imaging spectroscopy and light detection and ranging from the Carnegie Airborne Observatory to quantify the factors affecting species compositional changes in CWC in a diverse Mediterranean‐type ecosystem (Jasper Ridge Biological Preserve, California, USA) between 2013 and 2015. Mapped CWC was spatially variable in both of the observation years, and proved to be most closely tied to species composition and distribution across the landscape. The secondary predictors of CWC were elevation and soil substrate. In contrast, we found that CWC change was much more related to environmental factors than to the species composition. We suggest that the effect of environment on CWC change is mediated through species resistance and resilience to drought. Monitoring CWC change with imaging spectroscopy is a powerful approach to identifying species‐level responses to climatic events and long‐term change, which may provide support for policy decisions and conservation at large spatial scales.