Questions: Increasing climate variability has major effects on forest productivity, as well as transitions between forest and savanna ecosystems. While drought-induced declines in tropical forest productivity and forest loss is a global concern, forest expansion in subtropical South America predicted by climate models has received little attention. In the forest–grassland transition zone encompassing Uruguay, we ask: (1) how does climate variability affect woodland productivity and at what time scales; and (2) how do different woodland types (riparian, hillside and wooded savanna) differ in their sensitivity to climate variability?. Location: Forests and wooded savanna in Uruguay, subtropical southeast South America. Methods: Primary productivity was measured as the fraction of photosynthetically active radiation (fPAR) based on monthly normalized difference vegetation index (NDVI) from multitemporal (1998–2012) SPOT imagery at a 1 km × 1 km resolution, covering 19% of Uruguayan woodlands. The effects of accumulated rainfall and mean temperature on the productivity of riparian and hillside forests and wooded savanna were evaluated using correlations and time series analysis over multiple time windows ranging from 1–24 mo. Results: Inter-annual rainfall variability and seasonal temperatures affected forest productivity even though average conditions were largely non-limiting. Periods of exceptionally high rainfall and warm winters had positive effects on forest productivity, but hot summers had a negative effect on all woodland productivity. Riparian and hillside forest productivity was equally susceptible to drought, showing similar relationships to accumulated rainfall over multiple time periods, as well as similar susceptibility to high summer temperatures. Wooded savanna – a composite cover of trees and a grass/forb understorey – productivity was linked to seasonal rainfall over 3–6 mo, and in general showed the lowest correlation with inter-annual variability in rainfall. Conclusions: Results suggest functional convergence in the response of riparian and hillside forests to water deficit and hot summers. The increases in forest productivity with increasing rainfall and declining drought risk – as predicted by the IPCC for this region – are a potential mechanism for increased growth and future expansion of forests in this biogeographic transition zone.