Wetland communities are shaped by high levels of stress, disturbance and competition. Using South African palmiet wetlands as a case study (Prionium serratum dominated valley-bottom wetlands), we explore whether autogenic or allogenic succession is the dominant process driving community dynamics in valley-bottom wetlands in drylands. Several wetland rehabilitation programmes in South Africa use the dominant wetland species palmiet (P. serratum) as a pioneer to facilitate recolonization. However research is needed on palmiet wetland dynamics and formation to guide these restoration efforts. We explore vegetation patterns by analyzing which environmental parameters drive dominance of palmiet, resulting in the characteristic patchiness of palmiet wetlands, and which plant functional traits account for this. In 20 plots from three palmiet wetlands distributed across the Cape Floristic Region of South Africa, key soil, groundwater and vegetation parameters, as well as community composition were measured. Twenty-two dominant species were selected and 13 functional traits measured. Soil pH and relative groundwater depth were the main environmental parameters driving community assembly in palmiet wetlands. Palmiet-dominated communities were characterized by greater stem diameter, leaf length–width ratio, leaf area and cellulose and lignin concentration compared to fynbos communities. These traits suggest adaptations to disturbances such as fires (thicker stems) and floods (long, thin leaves, flexible shoots and thicker stems). We propose three hypotheses of palmiet wetland development which shed light on palmiet wetland restoration and highlight gaps for future research.