The persistence of future forests depends on the success of tree seedlings which are experiencing increasing physiological stress from changing climate and air pollution. Although the moss layer can serve as an important substrate for tree seedlings, its potential for reducing environmental stress and enhancing the establishment of seedlings remains poorly understood. We tested if the moss layer decreased environmental stress and increased the abundance of balsam fir seedlings dominant in high-elevation forests of northeastern United States that are sensitive to changing climate and mercury deposition. We surveyed balsam fir seedling density by substrate (moss, litter, other) on 120 quadrats (1 × 1 m) in two contrasting canopy environments (in gaps and under canopies), measured seedling stress, and quantified mercury content in seedlings and substrates. We observed that, in both canopy environments, tree seedlings established on moss exhibited (i) increased density, (ii) decreased physiological stress, and (iii) higher potential to recruit into larger size classes, compared to seedlings established in litter. Regardless of canopy environment, seedling foliar mercury levels did not correspond to substrate mercury despite large differences in substrate mercury concentrations (relative to moss, litter concentrations were ~ 4-times greater and soil concentrations were ~ 6-times greater), likely reflecting the dominance of foliar over root uptake of mercury. Because the moss layer appeared to mitigate seedling drought stress, and to increase seedling establishment and recruitment compared to other substrates, these microsite effects should be considered in models predicting forest regeneration and dynamics under increased drought stress associated with the ongoing climate warming.