How drought affects tree and stand growth is an old question, but is getting unprecedented relevance in view of climate change. Stress effects related to drought have been mostly studied at the individual tree level, mostly investigating dominant trees and using their responses as indicator for the impact at the stand level. However, findings at tree and stand level may differ, as the stand responses include interactions and feedbacks that may buffer or aggravate what is observed at the individual tree level. Here, we trace drought effects on growth and development from tree to the stand scale. Therefore, we analyse annually measured data from long-term experiments in temperate and Mediterranean forests. With this analysis, we aim to disclose how well results of dominant tree growth reflect stand-level behaviour, hypothesizing that drought resistance of dominant trees’ can strongly deviate from the overall sensitivity of the stand. First, we theoretically derive how drought responses at the stand level emerge from the tree-level behaviour, thereby considering that potential drought resistance of individual trees is modulated by acclimation and tree–tree interactions at the stand level and that the overall stress response at the stand level results from species-specific and size-dependent individual tree growth and mortality. Second, reviewing respective peer-reviewed literature (24 papers) and complementing findings by own measurements (22 experiments) from temperate and Mediterranean monospecific and mixed-species forests, we are able to reveal main causes for deviations of tree-level and stand-level findings regarding drought stress responses. Using a long-term experiment in Norway spruce (Picea abies (L.) KARST.) and European beech (Fagus sylvatica L.), we provide evidence that the species-dependent and size-dependent reactions matter and how the size–frequency distribution affects the scaling. We show by examples that tree-level derived results may overestimate growth losses by 25%. Third, we investigate the development of the growth dominance coefficient based on measurements gathered at the Bavarian forest climate stations. We show that drought changes stand biomass partitioning in favour of small trees, reduce social differentiation, and homogenize the vertical structure of forests. Finally, we discuss the drought-related consequences of the social class-specific growth reaction patterns for inventory and monitoring and highlight the importance of these findings for understanding site-specific stand dynamics, for forest modelling, and for silvicultural management.