Oaks are a dominant woody plant genus in the northern hemisphere that occupy a wide range of habitats and are ecologically diverse. We implemented a functional trait approach that included nine functional traits related to leaves and stems in order to explain the species coexistence of 21 oak species along a water availability gradient in a temperate forest in Mexico. This particular forest is characterized as a biodiversity hotspot, with many oak species including some endemics. Our main aim was to investigate whether the different oak species had specific trait associations that allow them to coexist along an environmental gradient at regional scale. First, we explored trait covariation and determined the main functional dimensions in which oaks were segregated. Second, we explored how environmental variation has selected for restricted functional dimensions that shape oak distributions along the gradient, regardless of their leaf life span or phylogeny (section level). Third, we quantified the niche overlap between the oak functional spaces at different levels. The analyzed species showed three functional dimensions of trait variation: a primary axis related to the leaf economic spectrum, which corresponds to the segregation of the species according to leaf habit; a second axis that reflects the stem hydraulic properties and corresponds to species segregation followed by phylogenetic segregation, reflecting some degree of trait conservatism, and a third axis, represented mainly by leaf area and plant height, that corresponds to species segregation. Finally, our findings indicated that the functional space measured with leaf traits and stem traits such as hydraulic capacity was integrally linked to niche differentiation. This linkage suggests that the earliest mechanism of species segregation was related to habitat suitability and that the stem hydraulic trade-off reflects differences between phylogenetic sections; these traits may promote coexistence between distantly related oak species.