We determined the temporal dynamics of cambial activity and xylem cell differentiation of Scots pine (Pinus sylvestris L.) within a dry inner Alpine valley (750 m a.s.l., Tyrol, Austria), where radial growth is strongly limited by drought in spring. Repeated micro-sampling of the developing tree ring of mature trees was carried out during two contrasting years at two study plots that differ in soil water availability (xeric and dry-mesic sites). In 2007, when air temperature at the beginning of the growing season in April exceeded the long-term mean by 6.4 degrees C, cambial cell division started in early April at both study plots. A delayed onset of cambial activity of c. 2 weeks was found in 2008, when average climate conditions prevailed in spring, indicating that resumption of cambial cell division after winter dormancy is temperature controlled. Cambial cell division consistently ended about the end of June/early July in both study years. Radial enlargement of tracheids started almost 3 weeks earlier in 2007 compared with 2008 at both study plots. At the xeric site, the maximum rate of tracheid production in 2007 and 2008 was reached in early and mid-May, respectively, and c. 2 weeks later at the dry-mesic site. Since in both study years more favorable growing conditions (i.e., an increase in soil water content) were recorded during summer, we suggest a strong sink competition for carbohydrates to mycorrhizal root and shoot growth. Wood formation stopped c. 4 weeks earlier at the xeric compared with the dry-mesic site in both years, indicating a strong influence of drought stress on cell differentiation. This is supported by radial widths of earlywood cells, which were found to be significantly narrower at the xeric than at the dry-mesic site (P < 0.05). Repeated cellular analyses during the two growing seasons revealed that, although spatial variability in the dynamics and duration of cell differentiation processes in P. sylvestris exposed to drought is strongly influenced by water availability, the onset of cambial activity and cell differentiation is controlled by temperature.