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In drylands, where water scarcity limits vascular plant growth, much of the primary production occurs at the soil surface. This is where complex macro‐ and microbial communities, in an intricate bond with soil particles, form biological soil crusts (biocrusts). Despite their critical role in regulating C and N cycling in dryland ecosystems, there is limited understanding of the fate of biologically fixed C and N from biocrusts into the mineral soil, or how climate change will affect C and N fluxes between the atmosphere, biocrusts, and subsurface soils. To address these gaps, we subjected biocrust–soil systems to experimental warming and drought under controlled laboratory conditions, monitored CO2 fluxes, and applied dual isotopic labeling pulses (13CO2 and 15N2). This allowed detailed quantification of elemental pathways into specific organic matter (OM) pools and microbial biomass via density fractionation and phospholipid fatty acid analyses. While biocrusts modulated CO2 fluxes regardless of the temperature regime, drought severely limited their photosynthetic C uptake to the extent that the systems no longer sustained net C uptake. Furthermore, the effect of biocrusts extended into the underlying 1 cm of mineral soil, where C and N accumulated as mineral‐associated OM (MAOM<63μm). This was strongly associated with increased relative dominance of fungi, suggesting that fungal hyphae facilitate the downward C and N translocation and subsequent MAOM formation. Most strikingly, however, these pathways were disrupted in systems exposed to warming, where no effects of biocrusts on the elemental composition of the underlying soil nor on MAOM were determined. This was further associated with reduced net biological N fixation under combined warming and drought, highlighting how changing climatic conditions diminish some of the most fundamental ecosystem functions of biocrusts, with detrimental repercussions for C and N cycling and the persistence of soil organic matter pools in dryland ecosystems. [ABSTRACT FROM AUTHOR]