To explore the mechanisms by which nitrogen alleviates drought stress in Phoebe bournei, this study integrated drought treatment with exogenous nitrogen application to assess physiological characteristics and employed transcriptome sequencing to decipher transcriptional responses. The results indicated that nitrogen fertilizer mitigated leaf wilting in P. bournei under drought stress and significantly enhanced leaf dry weight, fresh weight, thickness, and chlorophyll content. Furthermore, nitrogen improved photosynthesis by inhibiting stomatal closure, enhancing light energy absorption, and accelerating electron transport in PSII. 11 photosynthesis-related genes, including PFP, TRY, LQY, FTSH, FRO, CURT, PETF, ATPF, PETA, CRRSP, and MEN and 17 carbohydrate metabolism-associated genes, such as PWD, GBE1, GAPA, PFKA, RFS, ISA, GLGC, PGK, ALDO, GUX, RX9, MIOX, HCT, BAM, MPFP, and ERNI exhibited differential expression in response to nitrogen. Moreover, nitrogen treatment significantly modulated plant hormone metabolism, with 44 upregulated and 14 downregulated differentially expressed genes (DEGs) primarily associated with jasmonic acid (JA) synthesis and signaling. These findings provide new insights into enhancing the drought tolerance of P. bournei in the context of global climate change.