Body size strongly depends on developmental temperature. In more than 80% of the ectotherm species investigated, including bacteria, protists, invertebrates and vertebrates, individuals developing at lower temperatures exhibit protracted growth and achieve larger sizes than individuals developing at higher temperatures (referred to as the ‘temperature‐size rule’, TSR). One hypothesis to explain the TSR posits that reproduction and/or survival change more steeply with size in cold environments, resulting in larger optimal body sizes and consequently increased selection for growth. However, clearly ascertaining whether size directly affects fitness traits in a temperature‐dependent way is challenging due to the interdependence of size, reproduction and survival. To address this problem, experimental body size manipulation was performed in two male and two female strains of Hydra oligactis , a cold‐adapted temperate freshwater invertebrate. Experimentally enlarged and reduced individuals were followed at two distinct temperatures (8 and 12°C) in the laboratory to record sexual investment and postreproductive senescence. To gain insight into the underlying physiological processes, phenotypic observations were complemented with a large transcriptomic data set obtained from enlarged and reduced individuals from different temperatures. Within male hydra strains, fecundity increased, while survival decreased more steeply with size in cold, compared with warmer temperature. Females showed similar, though less emphasized, trends. Reduced animals in the cold had slower sexual development and were less able to undergo compensatory growth, suggesting temperature‐dependent constraints on physiological performance. Reduced and enlarged males differed dramatically in the expression of reproductive genes at low, but not at higher temperature, while in females, a complex transcriptomic restructuring was seen. In particular, metabolic genes were strongly affected by size manipulation, suggesting resource acquisition and allocation as a central mechanism driving allometric patterns. These results suggest that being large is more beneficial in cold environments, at least in terms of reproduction, while at higher temperature even small individuals can maintain reproductive output. Lower reproduction, however, can be compensated by improved survival in small individuals facing colder environments. The reproductive advantage of large size can provide selection for increased growth at low temperature, thereby explaining the TSR in hydra.