Plant-microbe interactions are critical in shaping forest dynamics, yet the molecular functions through which foliar endophytic fungi (FEF) influence seedling survival and coexistence remain unresolved. By combining FEF transcriptomics with seedling dynamics in a subtropical forest, we tested whether FEF molecular functions regulate seedling survival via host fitness differences and niche differentiation under modern coexistence theory. We found that FEF transcript diversity was strongly associated with host divergence time and maximum height, and FEF functions significantly enhanced seedling survival through fitness-related and niche-related processes. Among these FEF functions, gene ontology (GO) terms with high host-phylogeny dependence enhance seedling survival through fitness differences associated with multi-organism interactions, while those with high host-trait dependence enhance seedling survival through niche differentiation related to basic life processes. Our findings establish a bridge between microbial functional genomics and modern coexistence theory in natural forests.