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Under climate change, extreme droughts will limit water availability for plants. However, the species‐specific responses make it difficult to draw general conclusions. We hypothesized that changes in species' abundance in response to extreme drought can be best explained by a set of water economic traits under ambient conditions in combination with the ability to adjust these traits towards higher drought resistance. We conducted a 4‐year field experiment in temperate grasslands using rainout shelters with 30% and 50% rainfall reduction. We quantified the response as the change in species abundance between ambient conditions and the rainfall reduction. Abundance response to extreme drought was best explained by a combination of traits in ambient conditions and their functional adjustment, most likely reflecting plasticity. Smaller leaved species decreased less in abundance under drought. With increasing …