Drought can cause major damage to plant communities, but species damage thresholds and postdrought recovery of forest productivity are not yet predictable. We used an El Niño drought event as a natural experiment to test whether postdrought recovery of gas exchange could be predicted by properties of the water transport system, or if metabolism, primarily high abscisic acid concentration, might delay recovery. We monitored detailed physiological responses, including shoot sapflow, leaf gas exchange, leaf water potential and foliar abscisic acid (ABA), during drought and through the subsequent rehydration period for a sample of eight canopy and understory species. Severe drought caused major declines in leaf water potential, elevated foliar ABA concentrations and reduced stomatal conductance and assimilation rates in our eight sample species. Leaf water potential surpassed levels associated with incipient loss of leaf hydraulic conductance in four species. Following heavy rainfall gas exchange in all species, except those trees predicted to have suffered hydraulic impairment, recovered to prestressed rates within 1 d. Recovery of plant gas exchange was rapid and could be predicted by the hydraulic safety margin, providing strong support for leaf vulnerability to water deficit as an index of damage under natural drought conditions.