Background Drought significantly affects forests and woody crops by limiting their growth, increasing their susceptibility to diseases, and reducing productivity. Wood anatomical plasticity is a crucial adaptive mechanism that enables trees to cope with fluctuations in water availability. During severe drought, trees develop more and narrower vessels, enhancing hydraulic safety and reducing the risk of embolism. However, the molecular regulation of vessel formation is still not well understood. Results Using single-nucleus transcriptomics, we have generated a cell type-specific gene expression map of the mature poplar stem under well-watered and drought conditions. Our findings reveal extensive gene expression reprogramming in xylem-forming cells, with changes in auxin homeostasis identified as a key mechanism for anatomical adaptation. Specifically, we show that poplar WAT1-like genes control vessel spatial patterning. Additionally, the downregulation of WAT1-like gene expression in the dividing cells of the vascular cambium and the upregulation of MP-like gene expression in cells undergoing early vessel differentiation facilitate the formation of secondary xylem with narrower and more numerous vessels under drought. Furthermore, the wat2 mutant exhibits greater drought tolerance than wild-type trees, underscoring its potential for developing drought-resilient tree varieties. Conclusions This study provides the first single-nucleus transcriptomic map of hybrid poplar stems under severe drought, uncovering auxin-driven hormonal networks that regulate xylem plasticity and enhance drought tolerance. These insights provide valuable targets for improving resilience in poplar and other woody species.