Dryland wetlands are resilient ecosystems that can adapt to extreme periodic drought–flood episodes. Climate change projections show increased drought severity in drylands that could compromise wetland resilience and reduce important habitat services. These recognized risks have been difficult to evaluate due to our limited capacity to establish comprehensive relationships between flood–drought episodes and vegetation responses at the relevant spatiotemporal scales. We address this issue by integrating detailed spatiotemporal flood–drought simulations with remotely sensed vegetation responses to water regimes in a dryland wetland known for its highly variable inundation. We show that a combination of drought tolerance and dormancy strategies allow wetland vegetation to recover after droughts and recolonize areas invaded by terrestrial species. However, climate change scenarios show widespread degradation during drought and limited recovery after floods. Importantly, the combination of degradation extent and increase in drought duration is critical for the habitat services wetland systems provide for waterbirds and fish.