Summary Urban trees help towns to cope with climate warming by cooling both air and surfaces. The challenges imposed by the urban environment, with special reference to low water availability due to the presence of extensive pavements, result in high rates of mortality of street trees, that can be increased by climatic extremes. We investigated the water relations and xylem hydraulic safety/efficiency of Quercus ilex trees growing at urban sites with different percentages of surrounding impervious pavements. Seasonal changes of plant water potential and gas exchange, vulnerability to cavitation and embolism level, and morpho‐anatomical traits were measured. We found patterns of increasing water stress and vulnerability to drought at increasing percentages of impervious pavement cover, with a consequent reduction in gas exchange rates, decreased safety margins toward embolism development, and increased vulnerability to cavitation, suggesting the occurrence of stress‐induced hydraulic deterioration. The amount of impermeable surface and chronic exposure to water stress influence the site‐specific risk of drought‐induced dieback of urban trees under extreme drought. Besides providing directions for management of green spaces in towns, our data suggest that xylem hydraulics is key to a full understanding of the responses of urban trees to global change.