AbstractMore frequent and severe droughts are driving increased forest mortality around the globe. We urgently need to describe and predict how drought affects forest carbon cycling and identify thresholds of environmental stress that trigger ecosystem collapse. Quantifying the effects of drought at an ecosystem level is complex because dynamic climate–plant relationships can cause rapid and/or prolonged shifts in carbon balance. We employ the CARbon DAta MOdel fraMework (CARDAMOM) to investigate legacy effects of drought on forest carbon pools and fluxes. Our Bayesian model‐data fusion approach uses tower observed meteorological forcing and carbon fluxes to determine the response and sensitivity of aboveground and belowground ecological processes associated with the 2012–2015 California drought. Our study area is a mid‐montane mixed conifer forest in the Southern Sierras. CARDAMOM constrained with gross primary productivity (GPP) estimates covering 2011–2017 show a ~75% reduction in GPP, compared to negligible GPP change when constrained with 2011 only. Precipitation across 2012–2015 was 45% (474 mm) lower than the historical average and drove a cascading depletion in soil moisture and carbon pools (foliar, labile, roots, and litter). Adding 157 mm during an especially stressful year (2014, annual rainfall = 293 mm) led to a smaller depletion of water and carbon pools, steering the ecosystem away from a state of GPP tipping‐point collapse to recovery. We present novel process‐driven insights that demonstrate the sensitivity of GPP collapse to ecosystem foliar carbon and soil moisture states—showing that the full extent of GPP response takes several years to arise. Thus, long‐term changes in soil moisture and carbon pools can provide a mechanistic link between drought and forest mortality. Our study provides an example for how key precipitation threshold ranges can influence forest productivity, making them useful for monitoring and predicting forest mortality events.