Air temperature and humidity, as well as soil moisture conditions were decisive in determining forest composition and structural changes along an altitudinal transect from a dry valley bottom at 1250 m.a.s.l. to a ridge top at 3550 m.a.s.l. in the Bhutan Himalaya. Mean annual temperature and soil moisture content were inversely related. Mean annual temperature decreased from 18.2 °C in the valley to 4.3 °C at the ridge top, with an average lapse rate of 0.62 °C 100 m−1. Conversely, relative humidity, soil moisture content, and mean annual precipitation all increased with elevation, from 71.0%, 14.7%, and 584 mm in the valley to 93.5%, 73%, and 1576 mm at 3550 m. Based on quantitative vegetation data, climatic conditions, and observations on the presence of mosses and epiphytic vascular plants, the cloud-affected zone was defined as lying above c. 2500 m.a.s.l. and coincided with the transition from moist broad-leaved forest to moist/wet broad-leaved forest. Two floristic/physiognomic transitions were identified along the altitudinal gradient between broad-leaved and coniferous forests; the lower one at 2000 m a.s.l. between dry Pinus roxburghii forest and moist evergreen broad-leaved Quercus lanata forest (intervening with deciduous broad-leaved Q. griffithii in between). A critical soil moisture content of c. 20% marked the limit of downward extension of broad-leaved trees into the shade-intolerant but drought-tolerant pine zone.