Assessing the hydrological imbalance and associated land degradation issues facing much of southern Australia and other parts of the world requires a better understanding of the defining features of ecosystem water use and the design of sustainable agroecosystems. Thus, by grouping species with similar water-use strategies into ‘hydraulic functional types’ (HFTs), we investigated the characteristics of water use in species-rich plant communities of south-western Australia. HFTs were determined using multiple-trait associations between morphological and physiological traits relating to water transport, water-use efficiency and response to water deficit. Sixteen traits were assessed from a subset of 21 species from three plant communities located along a topographically determined soil- and water-availability gradient. Multivariate analyses showed that trait variation was least at sites with shallower soils and putatively lower water availability, suggesting a convergence of water-use strategies at sites where plants are exposed to large seasonal water deficits. Stem hydraulic parameters, including stem-specific hydraulic conductivity, conduit diameter and maximum percentage embolism, were positively correlated, indicating the generality that larger conduit diameter permits greater hydraulic efficiency and is associated with greater seasonal reductions in hydraulic conductivity in this ecosystem. Wood density was not correlated with these traits, but closely associated with species’ ability to withstand more negative water potentials during summer. Long-term integrated water-use efficiency was lower in shallow-rooted species that exhibited more negative summer water potentials. Specific leaf area and minimum leaf water potential were correlated with a number of separate traits, and appear to represent key axes of trait variation that describe the water-use strategies of different HFTs along the topographic gradient. Five HFTs were classified using a resemblance analysis according to combinations of traits that pertain to different water-use strategies among species; year-round active tree, year-round active shrub, hemiparasite, drought-suppressed broad-leaved shrub and drought-suppressed narrow-leaved shrub.