Grassland birds are declining at a faster rate than any other group of North American bird species. Livestock grazing is the primary economic use of grasslands in the western United States, but the effects of this use on distribution and productivity of grassland birds are unclear. We examined nest density and success of ground-nesting birds on grazed and ungrazed grasslands in western Montana. In comparison to grazed plots, ungrazed plots had reduced forb cover, increased litter cover, increased litter depth, and increased visual obstruction readings (VOR) of vegetation. Nest density among 10 of 11 common bird species was most strongly correlated with VOR of plots, and greatest nest density for each species occurred where mean VOR of the plot was similar to mean VOR at nests. Additionally, all bird species were relatively consistent in their choice of VOR at nests despite substantial differences in VOR among plots. We suggest that birds selected plots based in part on availability of suitable nest sites and that variation in nest density relative to grazing reflected the effect of grazing on availability of nest sites. Nest success was similar between grazed plots and ungrazed plots for two species but was lower for nests on grazed plots than on ungrazed plots for two other species because of increased rates of predation, trampling, or parasitism by brown-headed cowbirds (Molothrus ater). Other species nested almost exclusively on ungrazed plots (six species) or grazed plots (one species), precluding evaluation of the effects of grazing on nest success. We demonstrate that each species in a diverse suite of ground-nesting birds preferentially used certain habitats for nesting and that grazing altered availability of preferred nesting habitats through changes in vegetation structure and plant species composition. We also show that grazing directly or indirectly predisposed some bird species to increased nesting mortality. Management alternatives that avoid intensive grazing during the breeding season would be expected to benefit many grassland bird species.