In Mediterranean mountains, Pinus sylvestris L. is expected to be displaced under a warming climate by more drought-tolerant species such as the sub-Mediterranean Quercus pyrenaica Willd. Understanding how environmental factors drive tree physiology and phenology is, therefore, essential to assess the effect of changing climatic conditions on the performance of these species and, ultimately, their distribution. We compared the cambial and leaf phenology and leaf gas exchange of Q. pyrenaica and P. sylvestris at their altitudinal boundary in Central Spain and assessed the environmental variables involved. Results indicate that P. sylvestris cambial phenology was more sensitive to weather conditions (temperature at the onset and water deficit at the end of the growing season) than Q. pyrenaica. On the other hand, Q. pyrenaica cambial and leaf phenology were synchronized and driven by photoperiod and temperatures. Pinus sylvestris showed lower photosynthetic nitrogen-use efficiency and higher intrinsic water-use efficiency than Q. pyrenaica as a result of a tighter stomatal control in response to summer dry conditions, despite its less negative midday leaf water potentials. These phenological and leaf gas exchange responses evidence a stronger sensitivity to drought of P. sylvestris than that of Q. pyrenaica, which may therefore hold a competitive advantage over P. sylvestris under the predicted increase in recurrence and intensity of drought events. On the other hand, both species could benefit from warmer springs through an advanced phenology, although this effect could be limited in Q. pyrenaica if it maintains a photoperiod control over the onset of xylogenesis.