Dryland montane forests conserve water for people living in the fluvial plains. The fate of these forests under climate warming is strongly affected by local environmental factors. The question remains of how internal factors contribute to climate change impacts on forest growth in these regions. Here, we investigated tree ring records for similar-aged stand-grown trees and their neighboring open-grown trees at elevation in a dryland montane forest (Picea crassifolia Kom.) in northwestern China. The growth rate of open-grown trees is much higher than their neighboring stand-grown trees across the entire elevation gradient, and the lower the altitude, the greater the difference. Open-grown trees at different elevations showed similar growth patterns, as tree growth at all sites was accelerated over time. In contrast, growth patterns of stand-grown trees were divergent at different altitudes, as growth at high elevations (3100-3300 m a.s.l.) was accelerated, whereas growth at low elevations (2700-2900 m a.s.l.) became stable after the year 1990. Analysis of growth-climate relationships indicated that warming promoted open-grown tree growth across the entire altitude gradient, and also stand-grown tree growth at high elevations, but negatively affected the growth of stand-grown trees at low elevations. Water scarcity can be exacerbated by competition within forests, inhibiting the warming-induced benefits on tree growth. Moving window correlation analysis suggested the negative effect of warming on tree growth at low elevations was diminished after the late 1990s, as the drought stress was alleviated. Our research shows the divergent growth responses to warming of stand-grown and open-grown trees along elevation. It reveals effects of internal factors in determining tree growth response to warming and holds the potential to aid forest management and ecosystem models in responding to climate change.