Different species associations are situated in habitats at various slope positions in the Lienhuachih forest of central Taiwan. This research investigated relationships of tree species associations with the topography, water availability, and species drought tolerance of this forest. In total, 52 species distributed in ridge, slope, and valley habitats were studied. The soil water content and predawn leaf water potential (Ψpd) were adopted to indicate the water availability of each habitat. The leaf water potential at the turgor loss point (πtlp) was used to compare differences in leaf drought tolerance among species and species associations. Results showed that the soil water content and Ψpd of species in the ridge habitat were significantly lower than those in the valley habitat. Values of the πtlp of all species during the dry season ranged -2.98~-2.03 MPa, with a mean πtlp of -2.49±0.03 MPa. Among the studied species, Euonymus laxiflorus, Lithocarpus nantoensis, and Ormosia formosana had the highest leaf drought tolerance. Species associations of ridge, slope, and valley habitats showed mean πtlp values of -2.66±0.05, -2.50±0.07, and -2.25±0.07 MPa, respectively, with the species association of the ridge habitat having the highest leaf drought tolerance. After adopting values of the πtlp to categorize drought tolerance classes of the 52 tested species in the Lienhuachih forest, 29 species were classified into the ‘drought-tolerant’ category, and the other 23 species were ‘mid-drought tolerant’ with relatively less tolerance. The πtlp of every species was significantly lower during the dry season than the rainy season, indicating seasonal acclimation of the leaf drought tolerance. In addition, there was also significant spatial acclimation in the leaf drought tolerance along the water availability gradient, i.e., πtlp values of individuals growing in the ridge habitat were all significantly lower than those of individuals of the same species growing in the valley habitat. During the dry season, the Ψpd and πtlp of 18 species growing in the ridge habitat appeared to be negatively correlated, indicating that species with high physiological drought tolerance might also have deeper root systems. This research found that habitat water availability and leaf drought tolerance are two important mechanisms, among others, driving habitat divergence of tree species associations in the Lienhuachih forest.