Species diversity may increase the productivity of tree communities through complementarity (CE) and/or selection effects (SE), but it is not well known how this relationship changes under water limitation. We tested the stress-gradient hypothesis, which predicts that resource use complementarity and facilitation are more important under water-limited conditions. We conducted a growth experiment with saplings of five temperate broad-leaved tree species that were grown in assemblages of variable diversity (1, 3 or 5 species) and species composition under ample and limited water supply to examine effects of species richness and species identity on stand- and tree-level productivity. Special attention was paid to effects of neighbor identity on the growth of target trees in mixture as compared to growth in monoculture. Stand productivity was strongly influenced by species identity while a net biodiversity effect was significant in the moist treatment (mostly assignable to CE) but of minor importance. The growth performance of some of the species in the mixtures was affected by tree neighborhood characteristics with neighbor size likely being more important than neighbor species identity. Diversity and neighbor identity effects visible in the moist treatment mostly disappeared in the dry treatment, disproving the stress-gradient hypothesis. The mixtures were similarly sensitive to drought-induced growth reduction as the monocultures, which may relate to the decreased complementarity effect on growth upon drought in the mixtures.