The tight connection between deterioration of xylem functioning and plant mortality under drought is well recognized. However, a lack of mechanistic understanding of how substantial conductivity loss influences plant performance under drought and postdrought recovery hinders our ability to model tree responses to drought stress. We artificially modelled 50% conductivity loss in Scots pine and Norway spruce saplings by stem notching and investigated plant performance under drought and postdrought recovery. Plant mortality, xylem hydraulic conductivity, leaf water status and stomatal conductance to gas exchange were measured. We observed no preferential mortality of top plant parts (above the notching) compared to basal plant parts (below the notching), and in dying plants, no consistent trend in hydraulic conductivity loss could be observed between top and basal parts. Stem hydraulic conductance, needle water status and stomatal conductance changed in a similar manner between the top and basal parts, both during drought and postdrought recovery, thus indicating the substantial hydraulic overcapacity of the stems. The recovery of stomatal conductance demonstrated prominent hysteresis due to nonhydraulic stomatal limitations. The results obtained are of substantial importance in modelling the influence of plant hydraulic impairment on plant performance under drought and postdrought recovery.