Water deficit in the atmosphere and soil are two key interactive factors that constrain transpiration and vegetation productivity. It is not clear which of these two factors is more important for the water and carbon flux response to drought stress in ecosystems. In this study, field data and numerical modeling were used to isolate their impact on evapotranspiration (ET) and gross primary productivity (GPP) at a tropical forest site in Barro Colorado Island (BCI), Panama, focusing on their response to the drought induced by the El Niño event of 2015–2016. Numerical simulations were performed using a plant hydrodynamic scheme (HYDRO) and a heuristic approach that ignores stomatal sensitivity to leaf water potential in the Energy Exascale Earth System Model (E3SM) Land Model (ELM). The sensitivity of canopy conductance (Gs) to vapor pressure deficit (VPD) obtained from eddy-covariance fluxes and measured sap flux shows that, at both ecosystem and plant scale, soil water stress is more important in limiting Gs than VPD at BCI during the El Niño event. The model simulations confirmed the importance of water stress limitation on Gs, but overestimated the VPD impact on Gs compared to that estimated from the observations. We also found that the predicted soil moisture is less sensitive to the diversity of plant hydraulic traits than ET and GPP. During the dry season at BCI, seasonal ET, especially soil evaporation at VPD > 0.42 kPa, simulated using HYDRO and ELM, were too strong and will require alternative parameterizations.