Identifying the physiological mechanisms by which plants are adapted to drought is critical to predict species responses to climate change. We measured the responses of leaf hydraulic and stomatal conductances (Kleaf and gs, respectively) to dehydration, and their association with anatomy, in seven species of California Ceanothus grown in a common garden, including some of the most drought-tolerant species in the semi-arid flora. We tested for matching of maximum hydraulic supply and demand and quantified the role of decline of Kleaf in driving stomatal closure. Across Ceanothus species, maximum Kleaf and gs were negatively correlated, and both Kleaf and gs showed steep declines with decreasing leaf water potential (i.e., a high sensitivity to dehydration). The leaf water potential at 50% decline in gs was linked with a low ratio of maximum hydraulic supply to demand (i.e., maximum Kleaf:gs). This sensitivity of gs, combined with low minimum epidermal conductance and water storage, could contribute to prolonged leaf survival under drought. The specialized anatomy of subg. Cerastes includes trichomous stomatal crypts and pronounced hypodermis, and was associated with higher water use efficiency and water storage. Combining our data with comparative literature of other California species, species of subg. Cerastes show traits associated with greater drought tolerance and reliance on leaf water storage relative to other California species. In addition to drought resistance mechanisms such as mechanical protection and resistance to embolism, drought avoidance mechanisms such as sensitive stomatal closure could contribute importantly to drought tolerance in dry-climate adapted species.