River regulation and water extraction have altered the hydrology of rivers resulting in substantial changes to forest structure and the dieback of floodplain forests globally. Forest mortality, due to water extraction, is likely to be exacerbated by climate change-induced droughts. In 1965, a plantation trial was established within a natural floodplain forest to examine the effect of planting density on timber production. We used data from this trial to investigate the effect of initial stand density on the structure and dynamics of Eucalyptus camaldulensis (Dehnh.) forests. Highest density stands (8000 trees ha−1) were dominated by many slender trees, mostly<10 cm in diameter, whereas the lowest density stands produced size distributions with a wider range of stem diameters and higher mean and maximum stem diameter. After 1996, the study area experienced a sharp decline in water availability due to a substantial lowering of the water table, reduced flooding frequency, a pronounced rainfall deficit and increased maximum temperatures. The drought coincided with a dramatic increase in mortality in the high-density stands, yet remained little changed in low-density treatments. Our results highlight the importance of initial stand density as a key determinant of the development of forest structure. Early thinning of high-density stands is one component of a broader management approach to mitigate impacts of human-induced drought and water extraction on developing floodplain forests.