BACKGROUND: In arid environments, where light and water supply are patchy in space and time, differences in how seedlings tolerate drought and shade conditions will determine the ability of a species to establish. Understanding seedling responses to the interactive effects of water and shade is critical to predict the future impact of increasing drought frequencies on plant communities across many arid ecosystems of the world. In this study, we used an experimental field approach to assess how different light (15%, 75%, and 95%) and water (natural rainfall (NR), NR +50 mm, NR +100 mm) levels affect seedling survival and growth of four Atacama Desert shrub species (Calliandra chilensis, Encella canescens, Proustia cuneifolia, and Senna cumingii). We predicted that under drought conditions, maximum seedling survival and growth would occur at intermediate levels of shade RESULTS: Shade and water had independent effects on seedling survival of all species. In contrast, the interaction between shade and water only affected seedling survival of E. canescens. Seedling survival of the four species tended to be higher in environments with intermediate shade and 100 mm of added water than in high or low shade environments with either 50 mm or no additional water. Relative growth rates (RGR) of all species, except E. canescens, were only positive at intermediate or high shade levels with 50 or 100 mm of added water CONCLUSIONS: Our results not only highlight the importance of water for plant recruitment in arid ecosystems but also stress the positive role of shade as a factor influencing seedling establishment