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The future of dry forests around the world is uncertain given predictions that rising temperatures and enhanced aridity will increase drought‐induced tree mortality. Using forest management and ecological restoration to reduce density and competition for water offers one of the few pathways that forests managers can potentially minimize drought‐induced tree mortality. Competition for water during drought leads to elevated tree mortality in dense stands, although the influence of density on heat‐induced stress and the durations of hot or dry conditions that most impact mortality remain unclear.Understanding how competition interacts with hot‐drought stress is essential to recognize how, where and how much reducing density can help sustain dry forests in a rapidly changing world. Here, we integrated repeat measurements of 28,881 ponderosa pine trees across the western US (2000–2017) with soil moisture estimates from a water balance model to examine how annual mortality responds to competition, temperature and soil moisture conditions.Tree mortality responded most strongly to basal area, and was elevated in places with high mean temperatures, unusually hot 7‐year high temperature anomalies, and unusually dry 8‐year low soil moisture anomalies. Mortality was also lower in places that experienced unusually wet 3‐year soil moisture anomalies between measurements. Importantly, we found that basal area interacts with temperature and soil moisture, exacerbating mortality during times of stress imposed by high temperature or low moisture.Synthesis and applications. Our results imply that a 50% reduction in forest basal area could reduce drought‐driven tree mortality by 20%–80%. The largest impacts of density reduction are seen in areas with high current basal area and places that experience high temperatures and/or severe multiyear droughts. These interactions between competition and drought are critical to understand past and future patterns of tree mortality in the context of climate change, and provide information for resource managers seeking to enhance dry forest drought resistance. [ABSTRACT FROM AUTHOR]