Global change drivers, such as shrub encroachment, alter above- and belowground communities, and the consequences of these changes for ecosystem functioning are largely unknown. We used the modified Price equation to quantify how the presence of shrubs alters the richness, composition, and abundance of plant and nematode communities and the resulting effects on ecosystem functioning (i.e., plant biomass and nematode carbon [C] metabolism) on the Qinghai-Tibet Plateau. Plots with shrubs had increased plant biomass (mostly due to persisting plant species producing more biomass) and nematode C metabolism (mostly due to increases in nematode species richness). The strength of the species richness effect on plant biomass was positively associated with the strength of the species richness on nematode C metabolism. Increases in the biomass of persisting species and species gains promote plant biomass and nematode C metabolism, respectively, which may accelerate decomposition and C turnover on the Qinghai-Tibet Plateau.