Numerous predictions indicate rising CO2 will accelerate the expansion of forests into savannas. Although encroaching forests can sequester carbon over the short term, increased fires and drought-fire interactions could offset carbon gains, which may be amplified by the shift toward forest plant communities more susceptible to fire-driven dieback. We quantify how bark thickness determines the ability of individual tree species to tolerate fire and subsequently determine the fire sensitivity of ecosystem carbon across 180 plots in savannas and forests throughout the 2.2-million km(2) Cerrado region in Brazil. We find that not accounting for variation in bark thickness across tree species underestimated carbon losses in forests by ~50%, totaling 0.22 PgC across the Cerrado region. The lower bark thicknesses of plant species in forests decreased fire tolerance to such an extent that a third of carbon gains during forest encroachment may be at risk of dieback if burned. These results illustrate that consideration of trait-based differences in fire tolerance is critical for determining the climate-carbon-fire feedback in tropical savanna and forest biomes.