Dryland (arid and semi-arid) ecosystems globally provide more than half of livestock production and store roughly one-third of soil organic carbon (SOC). Biogeochemical pools are changing due to shrub encroachment, livestock grazing, and climate change. We assessed how vegetation microsite, grazing, and precipitation interacted to affect SOC and total nitrogen (TN) at a site with long-term grazing manipulations and well-described patterns of shrub encroachment across elevation and mean annual precipitation (MAP) gradients. We analyzed SOC and TN in the context of vegetation cover at ungrazed locations within livestock exclosures, high-intensity grazing locations near water sources, and moderate-intensity grazing locations away from water. SOC was enhanced by MAP (p < 0.0001), but grazing intensity had little effect regardless of MAP (p = 0.12). Shrubs enhanced SOC (300–1279 g C m⁻²) and TN (27–122 g N m⁻²), except at high MAP where the contribution or stabilization of shrub inputs relative to grassland inputs was likely diminished. Cover of perennial herbaceous plants and litter were significant predictors of SOC (r² = 0.63 and 0.34, respectively) and TN (r² = 0.64 and 0.30, respectively). Our results suggest that continued shrub encroachment in drylands can increase SOC storage when grass production remains high, although this response may saturate with higher MAP. In contrast, grazing – at least at the intensities of our sites – has a lesser effect. These effects underscore the need to understand how future climate and grazing may interact to influence dryland biogeochemical cycling.