Woody biomass is a large carbon store in terrestrial ecosystems. In calculating biomass, tree stems are assumed to be solid structures. However, decomposer agents such as microbes and insects target stem heartwood, causing internal wood decay which is poorly quantified. We investigated internal stem damage across five sites in tropical Australia along a precipitation gradient. We estimated the amount of internal aboveground biomass damaged in living trees and measured four potential stem damage predictors: wood density, stem diameter, annual precipitation, and termite pressure (measured as termite damage in downed deadwood). Stem damage increased with increasing diameter, wood density, and termite pressure and decreased with increasing precipitation. High wood density stems sustained less damage in wet sites and more damage in dry sites, likely a result of shifting decomposer communities and their differing responses to changes in tree species and wood traits across sites. Incorporating stem damage reduced aboveground biomass estimates by > 30% in Australian savannas, compared to only 3% in rainforests. Accurate estimates of carbon storage across woody plant communities are critical for understanding the global carbon budget. Future biomass estimates should consider stem damage in concert with the effects of changes in decomposer communities and abiotic conditions.