Lianas are an important component of neotropical forests, where evidence suggests that they are increasing in abundance and biomass. Lianas are especially abundant in seasonally dry tropical forests, and as such it has been hypothesized that they are better adapted to drought, or that they are at an advantage under the higher light conditions in these forests. However, the physiological and morphological characteristics that allow lianas to capitalize more on seasonal forest conditions compared to trees are poorly understood. Here, we evaluate how saplings of 21 tree and liana species from a seasonal tropical forest in Panama differ in cavitation resistance (P50) and maximum hydraulic conductivity (K(h)), and how saplings of 24 tree and liana species differ in four photosynthetic leaf traits (e.g., maximum assimilation and stomatal conductance) and six morphological leaf and stem traits (e.g., wood density, maximum vessel length, and specific leaf area). At the sapling stage, lianas had a lower cavitation resistance than trees, implying lower drought tolerance, and they tended to have a higher potential hydraulic conductivity. In contrast to studies focusing on adult trees and lianas, we found no clear differences in morphological and photosynthetic traits between the life forms. Possibly, lianas and trees are functionally different at later ontogenetic stages, with lianas having deeper root systems than trees, or experience their main growth advantage during wet periods, when they are less vulnerable to cavitation and can achieve high conductivity. This study shows, however, that the hydraulic characteristics and functional traits that we examined do not explain differences in liana and tree distributions in seasonal forests.