Aim Climate change has been linked to negative effects on vegetation, including drought-induced dieback. Large-scale dieback not only leads to considerable carbon emissions but often leads to loss of ecological resources. We investigated whether, and how, the structure, composition and carbon content changed over a period of extended drought (the ‘Big Dry’) in a much-modified forest ecosystem. We explored whether landscape configuration, management practice or soil type influenced vegetation change. Location The Box-Ironbark forests of south-eastern Australia. Methods In 2010, we remeasured 120 forest transects that had first been measured in 1997 by using identical field methods. Vegetation structure and composition were quantified. We used allometric growth models to estimate the expected increase in above-ground carbon (AGC) storage between 1997 and 2010; these estimates were compared with observed values. Results Forest structure was systematically different between the two periods. Canopy cover, shrub cover and litter decreased between the 1997 and 2010 surveys, whereas total basal area of dead trees, dead trees in all size classes and saplings increased between the two surveys. Climate, fragment size and their interaction were the major predictors of change in most of the measured vegetation characteristics. By comparing measured AGC in 2010 and estimates from growth models, we estimated that 5.6 + 2.1 SE t C ha-1 may have been foregone over the Big Dry. Main conclusions Our findings add to the evidence linking climate change to negative effects on vegetation, including mortality, canopy dieback and reduced carbon sequestration. These effects may be amplified in fragmented vegetation because of greater water and heat stress. If the carbon sequestration deficit of c. 5.6 t C ha- 1 were to apply across the extant Box-Ironbark forests of Victoria (c. 255,400 ha), then 1.43 Mt of carbon sequestration may not have occurred during the Big Dry.