The earliest vascular plants had stems with a central cylindrical strand of water-conducting xylem, which rapidly diversified into more complex shapes. This diversification is understood to coincide with increases in plant body size and branching; however, no selection pressure favoring xylem strand-shape complexity is known. We show that incremental changes in xylem network organization that diverge from the cylindrical ancestral form lead to progressively greater drought resistance by reducing the risk of hydraulic failure. As xylem strand complexity increases, independent pathways for embolism spread become fewer and increasingly concentrated in more centrally located conduits, thus limiting the systemic spread of embolism during drought. Selection by drought may thus explain observed trajectories of xylem strand evolution in the fossil record and the diversity of extant forms.