Abstract. Associations with topographic units or soil types that vary in water availability are widespread in plant communities and are one of the main structuring aspects for local species distribution patterns, yet the underlying mechanisms are poorly understood. We hypothesized that differential seedling performance across habitats, particularly during the dry season, leads to habitat associations in seasonal tropical forests. We expected this pattern to be most pronounced in particularly dry years, such as those associated with El Niño Southern Oscillation (ENSO) events. We assessed performance of 36 native tree and shrub species in a moist forest in central Panama across the dry and wet seasons in two topographic habitat types during a year in which dry-season precipitation was reduced due to an ENSO event. At the community level, we found lower growth and higher mortality in the dry season relative to the wet season and higher mortality in the drier plateau habitat relative to the wetter slope habitat. There was large variation in species' responses to season and habitat. Species' mortality and growth rates were significantly correlated with experimentally assessed drought sensitivity, but only during the dry season in the plateau habitat. Slope specialists had significantly higher survival, but not growth, in the slope vs. plateau habitat during the dry season. In contrast, plateau specialists showed no performance differences between habitats. The data suggest that associations with plateau habitats result from a numerical advantage of drought-tolerant species in dry habitats in which seedlings of drought-sensitive species are unable to persist. Overall, our results support the idea that seasonal and spatial variation in water availability, particularly in dry years, drive seedling dynamics, which in turn shape local species distributions. Predicted shifts in rainfall patterns caused by global and regional climate change are therefore expected to alter the dynamics, composition, and diversity of seasonal tropical forests.