Woody plants are important components of dryland ecosystems. Our understanding of wood decomposition in drylands, an important component of biogeochemical cycling, is poor compared to that in mesic ecosystems. To uncovering the complex interactive effects of the different key drivers, we studied the effects of precipitation, position (aboveground and belowground), wood size and litter quality of plant species (four to five local species and one widespread woody species) on woody litter decomposition rates along a precipitation gradient from 37 to 369 mm, spanning five dryland sites. Wood dry matter content (DMC) was a critical negative predictor of wood decomposition in water-limited ecosystems. Thicker woody litter had lower decomposition rates (k values) directly because of smaller relative surface exposure, and indirectly through higher wood DMC or lower bark mass ratio (bark mass divided by wood mass for a given branch length). Mean annual precipitation (MAP) increased the k values both directly, and indirectly by decreasing the wood DMC and increasing the bark mass ratio due to species turnover. The k values of buried woody litter were mostly two to three times higher than litter on the soil surface, but not different at the extremely arid site. A steeper slope of the relationship between overall woody litter quality (particularly wood DMC) or annual precipitation and k values was observed belowground than aboveground, as related to the higher moisture belowground than aboveground. These findings highlight the complex interactions among climate (precipitation), litter position, size and quality on wood decomposition in drylands, thereby helping to improve our mechanistic understanding of dryland woody litter decomposition. We conclude that wood decomposition at the regional and local scales will influence biogeochemical cycling in drylands under future climate change through both direct effects of moisture and indirect effects of litter quality characteristics.