The combination of climate change and altered disturbance regimes is directly and indirectly affecting plant communities by mediating competitive interactions, resulting in shifts in species composition and abundance. Dryland plant communities, defined by low soil water availability and highly variable climatic regimes, are particularly vulnerable to climatic changes that exceed their historical range of variability. Individual‐based simulation models can be important tools to quantify the impacts of climate change, altered disturbance regimes, and their interaction on demographic and community‐level responses because they represent competitive interactions between individuals and individual responses to fluctuating environmental conditions. Here, we introduce STEPWAT2, an individual plant‐based simulation model for exploring the joint influence of climate change and disturbance regimes on dryland ecohydrology and plant community composition. STEPWAT2 utilizes a process‐based soil water model (SOILWAT2) to simulate available soil water in multiple soil layers, which plant individuals compete for based on the temporal matching of water and active root distributions with depth. This representation of resource utilization makes STEPWAT2 particularly useful for understanding how changes in soil moisture and altered disturbance regimes will concurrently impact demographic and community‐level responses in drylands. Our goals are threefold: (1) to describe the core modules and functions within STEPWAT2 (model description), (2) to validate STEPWAT2 model output using field data from big sagebrush plant communities (model validation), and (3) to highlight the usefulness of STEPWAT2 as a modeling framework for examining the impacts of climate change and disturbance regimes on dryland plant communities under future conditions (model application). To address goals 2 and 3, we focus on 15 sites that span the spatial extent of big sagebrush plant communities in the western United States. For goal 3, we quantify how climate change, fire, and grazing can interact to influence plant functional type biomass and composition. We use big sagebrush‐dominated plant communities to demonstrate the functionality of STEPWAT2, as these communities are among the most widespread dryland ecosystems in North America.