Seed selection is critical for successful restoration in semiarid systems. In the Great Basin, drought and annual grass invasion are primary barriers to native perennial seedling establishment. Local seed sourcing is encouraged to overcome drought, as drier populations exhibit drought‐adapted traits. Whether drought‐adapted traits are also beneficial for resisting invasive annual grasses, however, is an outstanding question. Here, we evaluate seedling performance and trait expression of Sandberg bluegrass (Poa secunda), a native perennial grass commonly used in restoration, in a factorial experiment that crossed seed source (five populations collected along an aridity gradient), water treatment (wet and dry), and competition (with and without cheatgrass). Seeds from the wettest site had the highest mean seedling establishment rate and biomass compared to seeds from drier sites. Establishment rate was sensitive to drought but not to cheatgrass competition, whereas biomass was sensitive to both stressors. Watering and competition treatments had a significant interaction effect on seedling trait expression. Specifically, without cheatgrass competition P. secunda exhibited more resource‐conservative traits under drought, such as lower specific leaf area and higher proportion of fine roots, whereas the relationship shifted such that with cheatgrass competition P. secunda exhibited more resource‐acquisitive traits under drought. Plasticity of seedling emergence and root length were negatively correlated with drought tolerance, which suggests no evidence for adaptive plasticity. As trait‐based approaches are increasingly used for seed selection in the Great Basin, our results highlight that the predictive power of traits for drought depends on the context of annual grass invasion.