Research Highlights: A small, long-term decrease in the water availability in a Mediterranean holm oak forest elicited strong effects on tree stem growth, mortality, and species composition, which led to changes in the ecosystem function and service provision. Background and Objectives: Many forest ecosystems are increasingly challenged by stress conditions under climate change. These new environmental constraints may drive changes in species distribution and ecosystem function. Materials and Methods: An evergreen Mediterranean holm oak (Quercus ilex L.) forest was subjected to 21 consecutive years of experimental drought (performing 30% of rainfall exclusion resulted in a 15% decrease in soil moisture). The effects of the annual climatic conditions and the experimental drought on a tree and shrub basal area increment were studied, with a focus on the two most dominant species (Q. ilex and the tall shrub Phillyrea latifolia L.). Results: Stem growth decreased and tree mortality increased under the experimental drought conditions and in hot and dry years. These effects differed between the two dominant species: the basal area of Q. ilex (the current, supradominant species) was dependent on water availability and climatic conditions, whereas P. latifolia was more tolerant to drought and experienced increased growth rates in plots where Q. ilex decay rates were high. Conclusions: Our findings reveal that small changes in water availability drive changes in species growth, composition, and distribution, as demonstrated by the continuous and ongoing replacement of the current supradominant Q. ilex by the subdominant P. latifolia, which is better adapted to tolerate hot and dry environments. The consequences of these ecological transformations for ecosystem function and service provision to human society are discussed.