This study evaluates drought survival mechanisms of tropical dry forest (TDF) trees based on their functional traits (FTs). We addressed the following questions: (i) What are the dominant functional guilds (FGs) of tree species across a soil water availability gradient in TDF? (ii) What are the important FTs influencing tree species assemblage in different FGs? (iii) What is the functional composition of different FGs in the study sites, and how are they influencing biomass accumulation capacity (BAC) across the soil water availability gradient?We selected 12 FTs associated with plant water use strategies, viz., canopy cover intensity (CC), wood specific gravity (WSG), saturated stem water content (QWsat), leaf size or leaf area (LA), specific leaf area (SLA), relative water content (RWC), leaf dry matter content (LDMC), leaf nitrogen content (LNC), leaf phosphorus content (LPC), maximum saturated stomatal conductance (Gsmax), maximum saturated photosynthetic rate (Amax), and intrinsic water use efficiency (WUEi). By using these FTs, we classified 47 tree species by HCPC (hierarchical clustering on principal components) into three FGs, viz, drought avoiding (DAFG), drought resistant (DRFG), and drought tolerant (DTFG). For species grouping, QWsat was the most significant for DAFG, impacts of Amax, LPC, Gsmax and LNC were significant for DRFG, while LDMC and CC were significant for DTFG. Across the five forest fragments, along a soil moisture content (SMC) gradient, the three FGs exhibited significant differences in species richness, stem density, aboveground biomass, and biomass accumulation capacity (BAC). We observed increasing dominance of DAFG towards drier sites, while the abundance of DRFG and DTFG was higher towards moister sites. Among the three FGs, DTFG showed highest biomass and BAC in our study region. Strategies of DAFG were more associated with savanna habitats, while DRFG and DTFG exhibited strategies important for TDFs. Our findings could help forest managers in restoration and conservation of TDFs.