1. Understanding what determines the high elevation limits of trees is crucial for predicting how treelines may shift in response to climate change. Treeline formation is commonly explained by a low-temperature restriction of meristematic activity (sink limitation) rather than carbon assimilation (source limitation). In arid mountains, however, trees face simultaneously low temperature and drought, both potentially restricting their growth and thus setting range limits. However, the mechanisms of treeline formation in high arid mountains are largely unknown. 2. We studied Myricaria elegans, one of the world’s highest growing winter-deciduous woody species, endemic to the arid Himalayas. We hypothesized that the upper elevation limit of Myricaria is associated with low-temperatures during the early growing season affecting earlywood formation, while later in the season drought is constraining earlywood maturation and latewood formation. 3. To test this hypothesis, we studied the quantitative anatomy of tree rings at different developmental stages across the entire species elevation range (3200-4400 m). We also explored daily stem increment and rehydration rates, seasonal dynamics of non-structural carbohydrates and stable C isotopes as a proxy for possible drought constraints. 4. Both earlywood and latewood increments decreased towards the treeline, while NSC in leaves, twigs and stem sapwood did not change, indicating a sink limitation as a main driver of the treeline. At treeline, low temperatures restricted earlywood formation more than latewood formation. Treeline individuals had – compared to individuals from lower elevations – smaller and fewer earlywood vessels, frequent frost rings and shorter periods with positive daily increments, but comparable night-time stem rehydration rates and latewood density. All these results suggest a sink limitation as a main mechanism behind the treeline formation in high arid mountains. 5. In the arid Himalayas, the treeline is set by the drastic growth reduction (sink limitation) caused by low temperature and short growing season under otherwise sufficient carbon and water supply. Spring freezing and high summer temperatures further constrain stem increment at treeline. The mean 6.9 °C temperature during the growing season places the Myricaria treeline within the thermal range of other high elevation treelines worldwide and support a common mechanism of alpine treeline formation.