We determined seasonal variation in soil matric potentials (ψsoil) along a topographical gradient and with soil depth in a Bolivian tropical dry (1160 mm y−1 rain) and moist forest (1580 mm y−1). In each forest we analysed the effect of drought on predawn leaf water potentials (ψpd) and drought response (midday leaf water potential at a standardized ψpd of −0.98 MPa; ψmd) of saplings of three tree species, varying in shade-tolerance and leaf phenology. ψsoil changed during the dry season and most extreme in the dry forest. Crests were drier than slopes and valleys. Dry-forest top soil was drier than deep soil in the dry season, the inverse was found in the wet season. In the moist forest the drought-deciduous species, Sweetia fruticosa, occupied dry sites. In the dry forest the short-lived pioneer, Solanum riparium, occupied wet sites and the shade-tolerant species, Acosmium cardenasii drier sites. Moist-forest species had similar drought response. The dry-forest pioneer showed a larger drought response than the other two species. Heterogeneity in soil water availability and interspecific differences in moisture requirements and drought response suggest great potential for niche differentiation. Species may coexist at different topographical locations, by extracting water from different soil layers and/or by doing so at different moments in time.