After a century of fire suppression, prescribed fire and mechanical thinning are widely used to restore mixed-conifer forests in California's Sierra Nevada, yet after these treatments, trees sometimes fail to regenerate on many sites, for several possible reasons. Notably, competition between shrubs and tree seedlings for scarce water during prolonged summer dry seasons is suspected to influence seedling survival, yet this hypothesis has been tested in few manipulated field experiments. We investigated the effects of vegetation patch types, root competition, putative mycorrhizal connections, soil moisture, and microclimate on the establishment of sugar pine (Pinus lambertiana) and white fir (Abies concolor) seedlings in an old-growth, mixed-conifer forest in the southern Sierra Nevada. Seedling survival rates were significantly higher under closed tree canopies than in patches dominated by manzanita (Arctostaphylos patula) shrubs. Treatments that allowed seedlings to connect with existing ectomycorrhizal networks did not enhance their survival. Isotope signatures suggest that mature conifer trees rely on water from deep soil layers (>50 cm), while shrubs and tree saplings (1–3 m in height) rely on water from shallower layers (0–50 cm) at the beginning of the season, but as soils become drier the shrub's and the sapling's primary zone of uptake shifts downward in the soil profile. These findings imply that shrubs may inhibit the survival of establishing tree seedlings until the seedlings have a deep enough root system to extract soil moisture from soil below 50 cm. Our study suggests that tree seedling survival may depend on a seedling's ability to compete with shrubs for scarce soil moisture in the near-surface soil layers.