Climatic change-induced water stress has been found to threaten the viability of trees, especially endangered species, through inhibiting their recruitment. Nyssa yunnanensis, a plant species with extremely small populations (PSESP), consists of only two small populations of eight mature individuals remaining in southwestern China. In order to determine the barriers to regeneration, both in situ and laboratory experiments were performed to examine the critical factors hindering seed germination and seedling establishment. The results of in situ field experiments demonstrated that soil water potentials lower than -5.40 MPa (experienced in December) had significantly inhibitory effects on seedling survival, and all seedlings perished at a soil water potential of -5.60 MPa (January). Laboratory experiments verified that N. yunnanensis seedlings could not survive at a 20% PEG 6000 concentration (-5.34 MPa) or 1/5 water-holding capacity (WHC; -5.64 MPa), and seed germination was inhibited in the field from September (-1.10 MPa) to November (-4.30 MPa). Our results suggested that soil water potentials between -5.34 and -5.64 MPa constituted the range of soil water potentials in which N. yunnanensis seedlings could not survive. In addition to water deficit, intensified autotoxicity, which is concentration-dependent, resulted in lower seed germination and seedling survival. Thus, seed establishment was probably simultaneously impacted by water deficit and aggravated autotoxicity. Meteorological records from the natural distribution areas of N. yunnanensis indicated that mean annual rainfall and relative humidity have declined by 21.7% and 6.3% respectively over past 55 years, while the temperature has increased by 6.0%. Climate change-induced drought, along with a poor resistance and adaptability to drought stress, has severely impacted the natural regeneration of N. yunnanensis. In conclusion, climate change-induced drought has been implicated as a regulating factor in the natural regeneration of N. yunnanensis through suppressing seed germination and screening out seedlings in the dry season. Based on the experimental findings, habitat restoration and microclimate improvement should both be highlighted in the conservation of this particular plant species.