Predictions of upslope range shifts for tree species with warming are based on assumptions of moisture stress at lower elevation limits and low‐temperature stress at high‐elevation limits. However, recent studies have shown that warming can reduce tree seedling establishment across the entire gradient from subalpine forest to alpine via moisture limitation. Warming effects also vary with species, potentially resulting in community shifts in high‐elevation forests. We examined the growth and physiology underlying effects of warming on seedling demographic patterns. We evaluated dry mass (DM), root length, allocation above‐ and below‐ground, and relative growth rate (RGR) of whole seedlings, and their ability to avoid or endure water stress via water‐use efficiency and resisting turgor loss, for Pinus flexilis, Picea engelmannii and Pinus contorta seeded below, at and above tree line in experimentally warmed, watered and control plots in the Rocky Mountains, USA. We expected that growth and allocation responses to warming would relate to moisture status and that variation in drought tolerance traits would explain species differences in survival rates. Across treatments and elevations, seedlings of all species had weak turgor‐loss resistance, and growth was marginal with negative RGR in the first growth phase (−0.01 to −0.04 g g⁻¹ day⁻¹). Growth was correlated with soil moisture, particularly in the relatively small‐seeded P. contorta and P. engelmannii. Pinus flexilis, known to have the highest survivorship, attained the greatest DM and longest root but was also the slowest growing and most water‐use efficient. This was likely due to its greater reliance on seed reserves. Seedlings developed 15% less total DM, 25% less root DM and 11% shorter roots in heated compared with unheated plots. Higher temperatures slightly increased DM, root length and RGR where soils were wettest, but more strongly decreased these variables under drier conditions. Synthesis. The surprising heat inhibition of tree seedling establishment at the cold edge of forests appears to have a physiological basis: newly germinated seedlings have poor moisture stress tolerance, which appears related to marginal initial growth and heavy reliance on seed reserves. Variation in these attributes among tree species at tree line helps explain their different climate responses.