Woody plant encroachment and overall declines in perennial vegetation in dryland regions can alter ecosystem properties and indicate land degradation, but the causes of these shifts remain controversial. Determining how changes in the abundance and distribution of grass and woody plants are influenced by conditions that regulate water availability at a regional scale provides a baseline to compare how management actions alter the composition of these vegetation types at a more local scale and can be used to predict future shifts under climate change. Using a remote‐sensing‐based approach, we assessed the balance between grasses and woody plants and how climate and topo‐edaphic conditions affected their abundances across the northern Sonoran Desert from 1989 to 2009. Despite widespread woody plant encroachment in this region over the last 150 years, we found that leguminous trees, including mesquite (Prosopis spp.), declined in cover in areas with prolonged drying conditions during the early 21st century. Creosote bush (Larrea tridentata) also had moderate decreases with prolonged drying but was buffered from changes on soils with low clay that promote infiltration and high available water capacity that allows for retention of water at depth. Perennial grasses have expanded and contracted over the last two decades in response to summer precipitation and were especially dynamic on shallow soils with high clay that have large fluctuations in water availability. Our results suggest that topo‐edaphic properties can amplify or ameliorate climate‐induced changes in woody plants and perennial grasses. Understanding these relationships has important implications for ecosystem function under climate change in the southwestern USA and can inform management efforts to regulate grass and woody plant abundances.