Naturally regenerating secondary vegetation dominates the tropical forest landscapes, showing a remarkable capacity to sequester carbon, but such a role is threatened by increasing drought predicted with climate change. To understand how secondary forest species and communities respond to drought, we leverage a long-term chronosequence of tropical successional forests from Central Panama that coincided with the 2015/16 El Niño extreme drought event to analyse the diameter growth and mortality of 113,505 saplings and 60 species under water stress. As expected, drought negatively impacted most species in either diameter growth, mortality, or both. However, we additionally found that neighbourhood basal area ameliorated or exacerbated the effect of drought on diameter growth of some species. These species-level demographic responses aggregated to a community-level shift from the dominance of drought-susceptible saplings to more drought-tolerant saplings during stand development. Our study highlights that sapling communities in older secondary forests were less sensitive to drought: they suffered less growth reduction possibly due to denser canopies that mitigated evapotranspiration, and they also experienced lower mortality due to a higher relative abundance of drought-resistant species. Saplings in young secondary forests were overall more susceptible to drought, but their responses were also highly variable, suggesting a potential in understanding why some young secondary forest communities are more drought-tolerant, a knowledge that can be leveraged to restore resilient forests necessary to withstand a future of increased drought frequency and severity under a changing climate.