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Diversity in seedling responses to combined shade and drought can drive species niche differences, and thus natural forest and scrub establishment dynamics and diversity. However, inherent trade-offs between shade tolerance and drought tolerance, as hypothesized in the literature, would constrain potential niche differentiation. For thirteen species of European trees and shrubs the impacts were determined of moderate and extreme drought on the growth and survival of first-year seedlings in a given soil volume, in irradiances in the range typical for temperate forest and scrub understories (3% daylight) and large gaps (30% daylight). Pots were watered differentially each second day to equalize soil water content across species and irradiances. Comparisons within and across species supported independent tolerances of shade and drought rather than trade-offs. For all species, drought reduced relative growth rate in dry mass by the same proportion in 3% daylight and in 30% daylight. Consequently, drought generally reduced final dry mass significantly more strongly in 30% daylight than in 3% daylight. Extreme drought led to earlier mortality in 30% daylight than in 3% daylight for nine of the eleven species tested, to earlier mortality in 3% daylight for one species, and to equal mortality rate in both irradiances for one species. For each species, growth-based shade tolerance was quantified as the ratio of absolute growth in low irradiance to that in high irradiance, and growth-based drought tolerance as the ratio of absolute growth in low water supply to that in high water supply. Across species, growth-based shade tolerance varied ≈9-fold, and growth-based drought tolerance ≈2-fold; species’ tolerances correlated respectively with indices of field establishment in shade and drought. Growth-based drought tolerance correlated with survival time in extreme drought. Experimentally quantified shade and drought tolerances varied independently for the 13 species tested, indicating the potential for extensive species niche differentiation in combinations of irradiance and water supply.