At its southernmost distribution limit in Inner Asia, the boreal forest disintegrates into forest fragments on moist sites (e.g. north-facing slopes), which are embedded in grasslands. This landscape mosaic is characterized by a much higher forest edge-to-interior ratio than in closed boreal forests. Earlier work in the forest-steppe ecotone of Mongolia has shown that Larix sibirica trees at forest edges grow faster than in the forest interior, as the more xeric environment at the edge promotes self-thinning and edges are preferentially targeted by selective logging and livestock grazing. Lowered stand density reduces competition for water in these semi-arid forests, where productivity is usually limited by summer drought. We studied how branch and coarse root hydraulic architecture and xylem conductivity, fine root biomass and necromass, and fine root morphology of L. sibirica respond to sites differing in water availability. Studying forest edge-interior gradients in two regions of western Mongolia, we found a significant reduction of branch theoretical (Kp) and empirical conductivity (Ks) in the putatively more drought-affected forest interior in the Mongolian Altai (mean precipitation: 120 mm yr−1), while no branch xylem modification occurred in the moister Khangai Mountains (215 mm yr−1). Kp and Ks were several times larger in roots than in branches, but root hydraulics were not influenced by stand density or mean annual precipitation. Very low fine root biomass: necromass ratios at all sites, and in the forest interior in particular, suggest that L. sibirica seeks to maintain a relatively high root conductivity by producing large conduits, which results in high root mortality due to embolism during drought. Our results suggest that L. sibirica is adapted to the semi-arid climate at its southernmost distribution limit by considerable plasticity of the branch hydraulic system and a small but apparently dynamic fine root system.