Hydraulic systems of plants have evolved in the context of carbon allocation and fitness trade‐offs of maximizing carbon gain and water transport in the face of short and long‐term fluctuations in environmental conditions. The resulting diversity of traits include a continuum of isohydry‐anisohydry or high to low relative stomatal closure during drought, shedding of canopy foliage or disconnecting roots from soil to survive drought, and adjusting root areas to efficiently manage canopy water costs associated with photosynthesis. These traits are examined within TREES, an integrated model that explicitly couples photosynthesis and carbon allocation to soil‐plant hydraulics and canopy processes. Key advances of the model are its ability to account for differences in soil and xylem cavitation, transience of hydraulic impairment associated with delayed or no refilling of xylem, and carbon allocation to plant structures based on photosynthetic uptake of carbon and hydraulic limitations to water transport. The model was used to examine hydraulic traits of cooccurring isohydric (piñon pine) and anisohydric (one‐seed juniper) trees from a field‐based experimental drought. Model predictions of both transpiration and leaf water potential were improved when there was no refilling of xylem over simulations where xylem was able refill in response to soil water recharge. Model experiments with alternative root‐to‐leaf area ratios (RR/L) showed the RR/L that supports maximum cumulative water use is not beneficial for supporting maximum carbon gain during extended drought, illustrating how a process model reveals trade‐offs in plant traits. Key Points: Stomatal conductance is modeled using physical equations with xylem cavitation Simulation of drought transpiration and leaf water potential was improved Transient response to cavitation helps to explain optimal hydraulic traits