Summary: The capacitative release of water from sapwood allows photosynthesis to continue for longer into dry periods, both diurnally and seasonally. However, costs of high capacitance include increased vulnerability to xylem cavitation. The degree of reliance on stored water is predicted to differ among environments as a result of this trade-off. Xylem water potential and sapwood capacitance were measured on 32 evergreen sclerophyll shrub and tree species in eastern Australia, sampled from four sites contrasting in soil nutrients and rainfall. Capacitance calculated over species' typical shoot water potential operating range was threefold higher for species from high compared to low-rainfall sites, and 1·5-fold higher for species from high compared to low-nutrient sites. To determine whether these site differences were related to extrinsic (e.g. water availability) or intrinsic (e.g. species anatomical construction) factors, we calculated capacitance at two common operating ranges; that is, the mean range in water potential observed for low-rainfall species (ΔΨlow rain) and the mean range for high-rainfall species (ΔΨhigh rain). While no difference was seen between low- and high-rainfall species in release of stored water across ΔΨhigh rain, across ΔΨlow rain, the high-rainfall species released 38% more stored water than low-rainfall species. Presumably these differences reflect underlying differences in anatomy, such as wood density, which was lower in high-rainfall species. These results accord with predictions that (i) species from wetter sites exhibit less negative stem water potentials and high sapwood capacitance, enabling them to maintain function under variable conditions characterized by many short, dry periods, while (ii) species from low-rainfall sites have wood anatomies conferring tolerance to very low water potentials, with low sapwood capacitance, enabling them to survive longer through unpredictable and extended periods of low rainfall. The finding that the degree to which species rely on stem-stored water varies with site rainfall suggests that changes in drought regimes (e.g. incidence, duration and severity) under future climates could differentially affect species according to the capacitance properties of their woody tissues.