In tallgrass prairie plant communities, new shoots are recruited from belowground bud banks, often in response to disturbance. We explored the contribution of belowground bud banks to grassland stability when perturbed by severe drought. We sought to quantify changes in bud bank density and demography, assess the contribution of the bud bank to aboveground net primary productivity, and compare shifts in above‐ and belowground plant community structure in response to drought. We experimentally reduced precipitation 76% from ambient levels for two years, and compared responses of drought plots to ambient and irrigated controls during the two years of drought and two years of recovery. We measured belowground bud bank density and aboveground shoot density, canopy cover, and aboveground net primary productivity. While aboveground net primary productivity and C4 grass flowering shoot density declined during drought, bud bank density was insensitive to drought. Rapid resilience of the aboveground plant community following cessation of drought appears to be mediated by the resistance of bud banks to drought. Shoot density, but not bud bank density, was positively correlated with total aboveground net primary productivity. Furthermore, proportional reductions in aboveground net primary productivity increased as shoot density increased. Plant community structure shifted both above‐ and belowground in response to precipitation treatments. Our results suggest that the response of perennial grasslands to drought may be mediated by the stable belowground bud bank, with shifts in abundance of individual species maintaining overall bud bank density and ecosystem function.