Water stress triggers acclimation responses and can damage plants, which varies by species and stress levels. Ongoing climate change is projected to result in longer and more intense water stress conditions leading to an alarming increase in drought-induced forest decline. The aim of this study was to evaluate the physiological responses of leaves and stem wood anatomy from Araucaria araucana pot-grown three-year old seedlings, a conifer tree from northwestern Patagonia. Plants were subjected to moderate and severe water restriction regimes and compared to well-watered controls. Severe water stress reduced relative leaf water content and triggered an accumulation of free proline in leaves, regardless of age. Epicuticular wax extrusions increased in apical leaf stomata while photosynthetic pigments decreased, resulting in differential oxidative damage. The concentration of phenolic compounds was not affected by water restrictions. Plants exposed to restricted water regimes showed diminished middle leaf biomass and expansion (similar to 60% of total leaves), increased stem wood density, and experienced 7% and 30% mortality rates under moderate and severe water stress, respectively. Our findings suggest that under moderate water stress, analogous to short-term droughts, A. araucana seedlings activate physiological mechanisms that allow them to withstand short periods of drought, while more severe water stress and longer droughts can be severely harmful.