Tropical forests play a disproportionately important role in the global carbon (C) cycle, but it remains unclear how local environments and functional diversity regulate tree aboveground C storage. We examined how three components (environments, functional dominance and diversity) affected C storage in Dinghushan 20-ha plot in China. There was large fine-scale variation in C storage. The three components significantly contributed to regulate C storage, but dominance and diversity of traits were associated with C storage in different directions. Structural equation models (SEMs) of dominance and diversity explained 34% and 32% of variation in C storage. Environments explained 26-44% of variation in dominance and diversity. Similar proportions of variation in C storage were explained by dominance and diversity in regression models, they were improved after adding environments. Diversity of maximum diameter was the best predictor of C storage. Complementarity and selection effects contributed to C storage simultaneously, and had similar importance. The SEMs disengaged the complex relationships among the three components and C storage, and established a framework to show the direct and indirect effects (via dominance and diversity) of local environments on C storage. We concluded that local environments are important for regulating functional diversity and C storage.