Embryos of annual killifish diapause in soil egg banks while ponds are dry. Their rates of development and survival in different developmental stages determine the numbers and stages of embryos at rewetting. In the Argentinean pearlfish Austrolebias bellottii, we investigated plasticity for desiccation in such embryonal life history components across phases of mild desiccation and rewetting and also effects of life history on hatching. In comparison with nonannuals, our data suggest that incidences of diapause have become relatively independent of the occurrence of desiccation, as if they have become genetically assimilated. We found limited survival effects of desiccation, limited developmental delays, and an acceleration of development into the prehatching stage. This response can be adaptive when desiccation informs that an opportunity to hatch approaches. Embryos arrest development in the prehatching stage (diapause DIII) or in the dispersed‐cell phase (diapause DI). Parental pair variation in rates of development and survival in the earliest developmental stages affects the fraction of embryos that are in DI at rewetting and the number surviving. Given such effects on life history fitness components, rates during embryonal development seem "visible" to selection and the developmental system can thus adapt when pair variation contains a heritable component. In agreement with expectations for the presence of diversified bet‐hedging, some embryos hatched and others not in over half of the clutches with several developed embryos at the moment of rewetting. Hatching probabilities increased for eggs produced later in the experiment, and they increased when embryos were rewetted a second time after two months. This response is opposite of what is expected when age‐dependent hatching would be adapted to exploit opportunities for completing another generation before the dry season.