Global climate change is leading to an increase in the frequency, intensity, and duration of drought events, which can affect the functioning of forest ecosystems. Because human activities such as afforestation and forest attributes such as canopy height may exhibit considerable spatial differences, such differences may alter the recovery paths of drought-impacted forests. To accurately assess how climate affects forest recovery, a quantitative evaluation on the effects of forest attributes and their possible interaction with the intensity of water stress is required. Here, forest recovery following extreme drought events was analyzed for Yunnan Province, southwest China. The variation in the recovery of forests with different water availability and canopy heights was quantitatively assessed at the regional scale by using canopy height data based on light detection and ranging (LiDAR) measurements, enhanced vegetation index data, and standardized precipitation evapotranspiration index (SPEI) data. Our results indicated that forest recovery was affected by water availability and canopy height. Based on the enhanced vegetation index measures, shorter trees were more likely to recover than taller ones after drought. Further analyses demonstrated that the effect of canopy height on recovery rates after drought also depends on water availability—the effect of canopy height on recovery diminished as water availability increased after drought. Additional analyses revealed that when the water availability exceeded a threshold (SPEI > 0.85), no significant difference in the recovery was found between short and tall trees (p > 0.05). In the context of global climate change, future climate scenarios of RCP2.6 and RCP8.5 showed more frequent water stress in Yunnan by the end of the 21st century. In summary, our results indicated that canopy height casts an important influence on forest recovery and tall trees have greater vulnerability and risk to dieback and mortality from drought. These results may have broad implications for policies and practices of forest management.