Functional relationships between wood density and measures of xylem hydraulic safety and efficiency are ambiguous, especially in wet tropical forests. In this meta‐analysis, we move beyond wood density per se and identify relationships between xylem allocated to fibers, parenchyma, and vessels and measures of hydraulic safety and efficiency. We analyzed published data of xylem traits, hydraulic properties and measures of drought resistance from neotropical tree species retrieved from 346 sources. We found that xylem volume allocation to fiber walls increases embolism resistance, but at the expense of specific conductivity and sapwood capacitance. Xylem volume investment in fiber lumen increases capacitance, while investment in axial parenchyma is associated with higher specific conductivity. Dominant tree taxa from wet forests prioritize xylem allocation to axial parenchyma at the expense of fiber walls, resulting in a low embolism resistance for a given wood density and a high vulnerability to drought‐induced mortality. We conclude that strong trade‐offs between xylem allocation to fiber walls, fiber lumen, and axial parenchyma drive drought resistance in neotropical trees. Moreover, the benefits of xylem allocation to axial parenchyma in wet tropical trees might not outweigh the consequential low embolism resistance under more frequent and severe droughts in a changing climate.