The impact of seed size on germination and seedling growth, as affected by water stress, was studied for five tree species from tropical dry forest of India, viz. Albizia procera, Acacia nilotica, Phyllanthus emblica, Terminalia arjuna and Terminalia chebula. Germination tests were conducted under five osmotic potential levels. Seedlings from large (LS) and small (SS) seeds were grown at four soil moisture levels. Observations were made on height, leaf area, biomass and other growth traits such as relative growth rate (RGR), net assimilation rate (NAR), specific leaf area (SLA), and root:shoot (R:S) ratio. Seeds of pioneer species and large seeds, within species, germinated earlier, and with increasing water stress, per cent germination and germination velocity declined. RGR was inversely related with drought tolerance. R:S ratio increased, RGR and SLA declined, but NAR increased with water stress. Notwithstanding successional status, the slow-growing species registered minimum reduction in biomass due to water stress. The response of LS and SS seedlings also differed for some of the growth variables. Increase in NAR could be a compensatory response to water stress, and the marked allocational plasticity could help maximize capture of the limited resource. Seedlings from smaller seeds, particularly of fast-growing species, would be able to cope with mild drought by morphogenetic and physiological plastic response in a better way than those from large seeds. However, seedlings from large seeds had greater survival than those from smaller seeds under intense water stress.