Fragmentation is ubiquitous across tropical forests and drives marked shifts in tree community composition by differentially affecting species’ dispersal, establishment and survival. Such compositional shifts can potentially alter ecosystem-level properties such as above-ground carbon storage, but our understanding of the factors linking compositional shifts to carbon storage is limited. We compared tree communities of contiguous and fragmented tropical rainforests in the Western Ghats (India) and assessed the ability of various plant functional traits associated with seed dispersal, establishment and survival processes to predict species’ responses to fragmentation. Further, we assessed relationships between functional traits that predict tree community turnover and those that govern carbon storage to examine how fragmentation effects on species’ composition can alter the ability of tree communities to store carbon. Seed size, as indexed by seed length, was the best predictor of species’ responses, with larger-seeded species declining in fragments. Across species, seed length was positively correlated with maximum attainable height, which decreased by 10% on average at the community level in fragments. Such shifts towards smaller-seeded communities could decrease forest stature and reduce above-ground carbon stocks by 8%. Synthesis and applications. Our study highlights a previously undescribed mechanism by which fragmentation-driven declines of large-seeded tree species can reduce above-ground carbon stocks by promoting shorter-statured forests. These results imply that strict protection alone might be insufficient, and that a multi-pronged conservation strategy would be required to sustain carbon stocks in tropical forest fragments. Such interventions will need to combine restoration programmes for large-seeded tree species in fragments with broader-scale efforts to maintain hospitable and well-connected landscapes for their seed dispersers.