World-wide, tropical savannas and dry forests are under increasing pressure from land use. The environmental impacts of agricultural expansion into these ecosystems have received much attention, yet subtler changes in natural vegetation remain severely understudied. We explored how bird communities vary along gradients of woody vegetation in the South American Dry Chaco by combining high-resolution, satellite-based tree, shrub and total woody cover with field data on the frequency of 82 bird species surveyed in 167 plots. We identified change points along woody cover gradients where the relative frequency of individual bird species dropped most strongly. Based on this, we identified forest indicator species and assessed evidence for community-level thresholds. Most forest birds (71%) had clear change points in their frequencies along vegetation gradients, starting as high as 38% total woody cover. Many (41%) forest species declined drastically at woody cover levels of less than 11%. This general pattern was similar for tree and shrub cover. Only 7% of our study area had woody cover levels where we detected no response in forest bird communities. In contrast, 68% of the area had woody cover levels with incremental declines in forest bird species, and 25% of the study area had woody cover levels below the forest bird community threshold. We identified 11 indicator species strongly related to woody cover, with highest frequencies in the eastern and western Dry Chaco. Spatial distributions of these species corresponded well with areas above and below woody vegetation thresholds. Synthesis and applications. We found evidence for critical thresholds for forest birds along woody cover gradients in dry forests and implemented tools to map where these thresholds have been crossed. For the Chaco, we highlight the importance of maintaining woody cover levels above about 40%, such as in certain silvopastoral systems that can be much more wildlife-friendly than other forms of agriculture. We identify remaining areas of potentially intact forest bird communities. More broadly, this study highlights the value of combining species-level (indicator species’ distributions) and ecosystem-level (satellite-based, continuous woody cover maps) surrogates for understanding biodiversity patterns and threats.