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Water is one of the major drivers determining distribution and abundance of plant species. Namely, plant species’ presence and location in the landscape can be explained using metrics of soil water because plant species are restricted to a species-specific range of soil water conditions, i.e. their hydrological niche. However, little is known about the specific traits that determine the hydrological niche of a plant species. To investigate the relationship between plant functional traits, community structure and hydrological niche segregation, we developed a new generic individual-based model PLANTHeR which describes plant functional trait abundance as a function solely of soil water potentials and individual behavior. An important innovation is that there are no a priori defined trade-offs so that the model is neither restricted to a certain set of species nor scaled to a specific ecosystem. We show that PLANTHeR is able to reproduce well-known ecological rules such as the self-thinning law. We found that plant functional traits and their combinations (plant functional types − PFTs) were restricted to specific ranges of soil water potentials. Furthermore, the existence of functional trait trade-offs and correlations was determined by environmental conditions. Most interestingly, the correlation intensity between traits representing competitive ability and traits promoting colonization ability changed with water stress intensities in a unimodal fashion. Our results suggest that soil water largely governs the functional composition, diversity and structure of plant communities. This has consequences for predicting plant species’ response to changes in the hydrological cycle due to global change. We suggest that PLANTHeR is a flexible tool that can be easily adapted for further ecological-modelling studies. [ABSTRACT FROM AUTHOR]