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Background and Aims Heartwood plays an important role in maintaining the structural integrity of trees. While, its formation has long be thought to be solely driven by internal ageing processes, more recent hypotheses suggest that heartwood formation acts as a regulator of the tree water balance by modulating sapwood quantities. Testing both hypotheses would shed light on the potential ecophysiological nature of heartwood formation, a very common process in trees. Methods We measured heartwood and sapwood quantities, xylem conduits and growth ring width and number on 406 stems of Pericopsis elata with ages ranging from 2 to 237 years. A subset of 17 trees with similar ages but varying growth rate were sampled in a shaded (slower growth) and sun-exposed (faster growth) site. We used regression analysis and structural equations modelling to investigate the dynamics and drivers of heartwood formation. Key Results We found a positive effect of growth rate on the probability of heartwood occurrence, suggesting an earlier heartwood onset in faster-growing stems. After this onset age, heartwood area increases with stem diameter and age. Despite the similar heartwood production per unit stem diameter increment, shaded trees produce heartwood faster than sun-exposed trees. Tree age and hydraulics showed similar direct effects on heartwood and sapwood area of sun-exposed trees, suggesting their mutual role in driving the heartwood dynamics of sun-exposed trees. However, for shaded trees, only tree hydraulics showed a direct effect, suggesting its prominent role over age in driving the heartwood dynamics in limited growing conditions. The positive relationship between growth rate and maximum stomatal conductance supports this conclusion. Conclusions Heartwood area increases as the tree ages but at a slower rate in trees where water demand is balanced by a sufficient water supply. Our findings suggest that heartwood formation is not only a structural but also a functional process.