*Hydraulic failure explains much of the increased rates of drought-induced tree mortality around the world, underlining the importance of understanding how species distributions are shaped by their vulnerability to embolism. Here we determined which physiological traits explain species climatic limits among temperate rainforest trees in a region where chronic water limitation is uncommon. *We quantified the variation in stem embolism vulnerability and leaf turgor loss point among 55 temperate rainforest tree species in New Zealand and tested which traits were most strongly related to species climatic limits. *Leaf turgor loss point and stem P50 (tension at which hydraulic conductance is at 50% of maximum) were uncorrelated. Stem P50 and hydraulic safety margin were the most strongly related physiological traits to climatic limits among angiosperms, but not among conifers. Morphological traits such as wood density and leaf dry matter content did not explain species climatic limits. *Stem embolism resistance and leaf turgor loss point appear to have evolved independently. Embolism resistance is the most useful predictor of the climatic limits of angiosperm trees. High embolism resistance in the curiously overbuilt New Zealand conifers suggests that their xylem properties may be more closely related to growing slowly under nutrient limitation and to resistance to microbial decomposition.