Forecasts of forest responses to climate variability are governed by climate exposure and ecosystem sensitivity, but ecosystem model projections and process representations are under-constrained by data at multidecadal and longer timescales. Here, we assess ecosystem sensitivity to centennial-scale hydroclimate variability, by comparing dendroclimatic and pollen-inferred reconstructions of drought, forest composition and biomass for the last millennium with five ecosystem model simulations. In both observations and models, spatial patterns in ecosystem responses to hydroclimate variability are strongly governed by ecosystem sensitivity rather than climate exposure. Ecosystem sensitivity was highest in simpler models and higher than observations, suggesting that interactions among biodiversity, demography, and ecophysiology processes dampen the sensitivity of forest composition and biomass to climate variability and change. By integrating ecosystem models with observations from timescales extending beyond the instrumental record, we can better understand and forecast the mechanisms regulating forest sensitivity to climate variability in a complex and changing world.