To increase the resilience of forests to drought and other hazards, foresters are increasingly planting mixed stands. This requires knowledge about the drought response of tree species in pure and mixed-culture neighborhoods. In addition, drought frequently interacts with continued atmospheric nitrogen (N) deposition. To disentangle these factors for European beech, Norway spruce and Douglas fir, we conducted a replicated 3-factorial sapling growth experiment with three moisture levels, (high, medium, and low), two N levels (high and ambient), and pure and mixed-culture neighborhoods. We measured biomass, stomatal conductance (G_S), shoot water potential (at predawn: _PD, midday, and turgor loss point: _TLP), branch xylem embolism resistance (₅₀) and minimum epidermal conductance (G_min). The three species differed most with respect to G_min (10-fold higher in beech than in the conifers), hydroscape area (larger in beech), and the time elapsed to reach stomatal closure (T_GS90) and _TLP (T_TLP; shorter in beech), while ₅₀ and _TLP were remarkably similar. Neighborhood (pure vs mixed-culture) influenced biomass production, water status and hydraulic traits, notably G_S (higher in Douglas fir, but lower in spruce and beech, in mixtures than pure culture), hydraulic safety margin (smaller for beech in mixtures), and T_GS90 and T_TLP (shorter for spruce in mixture). High N generally increased G_S, but no consistent N effects on leaf water status and hydraulic traits were detected, suggesting that neighbor identity had a larger effect on plant water relations than N availability. We conclude that both tree neighborhood and N availability modulate the drought response of beech, spruce, and Douglas fir. Species mixing can alleviate the drought stress of some species, but often by disadvantaging other species. Thus, our study suggests that stabilizing and building resilience of production forests against a drier and warmer climate may depend primarily on the right species choice; species mixing can support the agenda.