Summary Wood anatomy plays a key role in plants' ability to persist under drought and should therefore predict demography. Plants balance their resource allocation among wood cell types responsible for different functions. However, it remains unclear how these anatomical trade‐offs vary with water availability, and the extent to which they influence demographic rates. We investigated how wood anatomical trade‐offs were related to drought and demographic rates, for seedling communities in four tropical dry forests differing in their aridity indexes (AIs). We measured wood density, as well as vessel, fiber and parenchyma traits of 65 species, and we monitored growth and survival for a 1‐yr period. Two axes defined wood anatomical structure: a fiber‐parenchyma axis and a vessel‐wood density axis. Seedlings in drier sites had larger fiber but lower parenchyma fractions, while in less dry forests, seedlings had the opposite allocation pattern. The fiber–parenchyma trade‐off was unrelated to growth but was positively related to survival, and this later relationship was mediated by the AI. These findings expand our knowledge about the wood anatomical trade‐offs that mediate responses to drought conditions and influence demographic rates, in the seedling layer. This information is needed to anticipate future responses of forests to changing drought conditions.