Annual grass invasion into shrub-dominated ecosystems is associated with changes in nutrient cycling that may alter nitrogen (N) limitation and retention. Carbon (C) applications that reduce plant-available N have been suggested to give native perennial vegetation a competitive advantage over exotic annual grasses, but plant community and N retention responses to C addition remain poorly understood in these ecosystems. The main objectives of this study were to (1) evaluate the degree of N limitation of plant biomass in intact versus B. tectorum-invaded sagebrush communities, (2) determine if plant N limitation patterns are reflected in the strength of tracer ¹⁵N retention over two growing seasons, and (3) assess if the strength of plant N limitation predicts the efficacy of carbon additions intended to reduce soil N availability and plant growth. Labile C additions reduced biomass of exotic annual species; however, growth of native A. tridentata shrubs also declined. Exotic annual and native perennial plant communities had divergent responses to added N, with B. tectorum displaying greater ability to use added N to rapidly increase aboveground biomass, and native perennials increasing their tissue N concentration but showing little growth response. Few differences in N pools between the annual and native communities were detected. In contrast to expectations, however, more ¹⁵N was retained over two growing seasons in the invaded annual grass than in the native shrub community. Our data suggest that N cycling in converted exotic annual grasslands of the northern Intermountain West, USA, may retain N more strongly than previously thought.