Abstract Background and Aims Plant–plant interactions are crucial in Mediterranean ecosystems for coping with drought conditions, but it remains unclear how these interactions are modulated during plant establishment. This study examined how drought influences plant performance during early life stages and whether interactions depend on functional similarity and phylogenetic distance to the neighbourhood. Methods We conducted a common garden experiment using seeds of 20 perennial species from a Mediterranean shrubland (central Spain). Four of these perennials (focal species) grew during their early life stage either alone, with conspecifics or with individuals of the remaining perennials, in both a control and drought treatments. Four functional traits were measured in all focal species individuals to estimate interaction patterns through the relative intensity index (RII). We then tested whether RII values were related to the phylogenetic or functional similarity between species. Key Results Drought and neighbour presence induced negative effects on plant performance during early life stages, suggesting competitive interactions under these situations. Both RIIbiomass and RIIFv/Fm were significantly more negative under drought conditions, indicating that water scarcity results in individuals with lower biomass and reduced Fv/Fm, an indicator of photosynthetic efficiency, when grown with neighbours. The relationship between interaction patterns and phylogenetic or functional relatedness was species-specific, with some focal species competing more intensely when they grew with similar species (according to the limiting similarity hypothesis), and other species showing the opposite pattern (consistent with the competition–trait hierarchy hypothesis). Conclusions These results challenge the idea that lower phylogenetic or functional similarity always reduces competition, highlighting the need for future research to consider the complexity of plant interactions between neighbours and across ontogeny.