Plants must balance water expenditure from their crown with water supplied through root and stem tissues. Although many different combinations of hydraulic traits could accomplish water balance, we ask whether variation across species in stem hydraulic traits has been concentrated along few, or many, dimensions of trait variation. We measured stem hydraulic traits for 120 woody dicot species across a range of different biomes in eastern Australia. Mean annual temperatures ranged from 10 to 27°C and aridity (precipitation/potential evapotranspiration) from 0·33 to 1·02 across study sites. Xylem-specific conductivity, species' height and ratio of leaf area to xylem area were positively correlated, manifesting as a single axis of trait variation, with other traits mostly orthogonal to this axis. Thus, as height and ratio of leaf area to xylem area increased across species and habitats (increasing resistance per leaf area), xylem-specific conductivity partially compensated for this resistance. Xylem-specific conductivity was well predicted by increasing height (r2=0·45) and ratio of leaf area to xylem area (r2=0·36). This three-trait axis was positively correlated with increasing precipitation (r2=0·28) and temperature (r2=0·15), but most of the explained variance lay within sites (39%) rather than across sites (10%). Thus, the spread of species' traits along this functional axis reflected structural and hydraulic differences among co-occurring species, at least as much as it reflected differences associated with contrasting climates. High xylem-specific conductivity in stems was accomplished by high vessel diameter to number ratio (r2=0·32) and/or by high vessel lumen fraction (r2=0·13). Low midday water potential (higher xylem tension) was associated with low ratio of vessel diameter to number (r20·25), whereas low specific gravity (r2=0·18) and stiffness (r2=0·12) were associated with high vessel lumen fraction. Light capture (i.e. increasing height and leafiness) may be facilitated by high xylem-specific conductivity, but marked increases in xylem-specific conductivity may also be associated with reduced hydraulic and mechanical safety. Although the trade-offs associated with increasing xylem-specific conductivity remain unclear, our data suggest that xylem-specific conductivity is important for maintaining water balance across a large range of species and biomes.