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Positive interspecific plant–plant interactions in (semi-)arid ecosystems are crucial for supporting ecosystem diversity and stability, but how interactions respond to grazing combined with temporal variation in drought is poorly understood. In a semi-arid area in south-eastern Spain (Murcia region), we planted 1280 saplings of the palatable shrub Anthyllis cytisoides (beneficiary) under the canopy of the unpalatable shrub Artemisia herba-alba (nurse) or in open microsites between shrub patches. We applied four grazing treatments (no grazing, low goat grazing pressure, high goat grazing pressure and rabbit grazing) and two watering treatments. Sapling height and survival were followed for two consecutive years, during which one extreme drought event occurred. We analysed how grazing, watering and their combination affected nurse effects throughout the course of the study. Grazing and the drought event, but not watering, significantly altered the nurse effects. Under ungrazed conditions prior to the extreme drought event, nurse effects on sapling survival were neutral, whereas they were positive at rabbit-grazed plots. At low goat grazing, sapling growth was higher under nurse shrubs than in open microsites. However, after the extreme drought event, sapling survival was higher in open microsites at ungrazed plots, whereas at rabbit-grazed plots, nurse effects shifted from positive to neutral. Our findings highlight the importance of rabbit grazing in determining the direction of plant–plant interactions in arid ecosystems. Moreover, our findings support the idea that positive plant–plant interactions may wane under the combination of high grazing and drought stress. [ABSTRACT FROM AUTHOR]