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Plant functional traits can be used to predict ecosystem responses to climate gradients, yet precipitation explains very little variation for most traits. Soil water availability directly influences plant water uptake and thus may assist with the improvement of plant trait–water relationships. However, this promise remains poorly realized due to rare tests. Here, we provide the first study that attempts to link climate factors, vertical soil water availability, and community composition at a regional scale. Our study paired field-measured vertical soil available water (0–300 cm) and community functional composition at 46 herbaceous grassland sites along a steep hydrothermal gradient in the Loess Plateau of Central China. Community functional composition was expressed via community-weighted means of eight traits. Structural equation modeling was employed to evaluate the role of vertical soil available water content, controlled by precipitation and air temperature, in affecting plant community-weighted traits. We found that soil available water content at depths of 20–100 cm was typically responsible for mediating the effects of precipitation and air temperature on plant community composition. This emerged as the predominant factor to explain variations in grassland response traits, including leaf area, specific leaf area, and leaf dry matter content. These traits exhibited clear drought-induced shifts along soil desiccation gradients and responded to drier conditions by reducing leaf area/specific leaf area and increasing leaf dry matter content. Our findings rehighlighted soil water availability as the core driver that needs to be considered in the restoration and management of dryland ecosystems. © 2019 The Society for Range Management