Wildfires are predicted to increase in both frequency and severity across Mediterranean climate regions worldwide. While many Mediterranean-type ecosystems are considered broadly fire tolerant, there is little understanding of how differences in fire severity affect plant community dynamics, tree mortality and recruitment. In the tall karri (Eucalyptus diversicolor F. Muell) forests of southwest Australia, low to moderate severity wild and prescribed fires are relatively common. Mature karri trees survive these events and recover rapidly due to their thick bark and ability to prolifically resprout from epicormic buds. However, despite a projected increase in the frequency of high severity wildfires, the impact of such extreme fires on tree mortality and understory community composition is not well understood. We used a large and severe wildfire event in southwest Australia to assess how fire severity impacted recruitment and survival of karri seedlings, the mortality of mature karri trees, and the composition of the understory plant community. Mature karri tree mortality was 87% greater at sites burnt at high severity compared to unburnt sites and sites burnt at low severity. Understorey plant community composition of burnt sites was different to unburnt sites, driven largely by significant shifts in dominance. Notably, the usually dominant understorey shrub Trymalium odoratissimum was entirely absent from forests burnt at extreme high severity. These results indicate that karri forests burnt at very high severity undergo changes in stand structure that will persist for many decades, and that the structure and species composition of the understorey may also be altered significantly. This indication of a possible fire severity threshold is consistent with the findings of recent studies in other Mediterranean climates following catastrophic wildfires. This study highlights the need for further research into the effects of severe wildfire on forest ecosystems that are otherwise considered fire tolerant.