Plant tolerance is the ability to reduce the negative impact of herbivory on plant fitness. Numerous studies have shown that plant tolerance is affected by nutrient availability, but the effect of soil moisture has received less attention. We evaluated tolerance of apical damage (clipping that mimicked insect damage) under two watering regimes (control watering and drought) in the tarweed Madia sativa (Asteraceae). We recorded number of heads with seeds and total number of heads as traits related to fitness. Net photosynthetic rate, water use efficiency, number of branches, shoot biomass, and the root:shoot biomass ratio were measured as traits potentially related to tolerance via compensatory responses to damage. In the drought treatment, damaged plants showed ≈43% reduction in reproductive fitness components in comparison with undamaged plants. In contrast, there was no significant difference in reproductive fitness between undamaged and damaged plants in the control watering treatment. Shoot biomass was not affected by apical damage. The number of branches increased after damage in both water treatments but this increase was limited by drought stress. Net photosynthetic rate increased in damaged plants only in the control watering treatment. Water use efficiency increased with drought stress and, in plants regularly watered, also increased after damage. Root:shoot ratio was higher in the low water treatment and damaged plants tended to reduce root:shoot ratio only in this water treatment. It is concluded that water availability limits tolerance to apical damage in M. sativa, and that putative compensatory mechanisms are differentially affected by water availability.