Context <p>Woody encroachment has reshaped open ecosystems worldwide by altering vegetation structure and composition, often reducing plant richness and diversity. In wetlands, this process can disrupt plant-soil–water interactions that sustain spatial heterogeneity and ecosystem services. However, links between woody encroachment, biomass accumulation, and carbon stocks remain poorly understood in Cerrado wetlands.</p> Objectives <p>We assessed how woody encroachment affects plant community and ecosystem properties in Cerrado palm swamps (<i>veredas</i>), focusing on changes in species richness, diversity, and composition, and their relationships with aboveground biomass, carbon stocks, and soil attributes.</p> Methods <p>We sampled plant incidence, cover, biomass, and soil properties in encroached and non-encroached <i>veredas</i> in the Brazilian Cerrado. Species richness and diversity were compared between conditions, and differences in biomass and carbon stocks were evaluated. A generalized linear model assessed the effects of woody biomass on species richness, and multivariate analyses examined patterns of species composition in relation to soil attributes.</p> Results <p>Woody encroachment caused a marked decline in plant diversity, including a 45% reduction in herbaceous-shrub species richness (from 115 to 63), and promoted vegetation homogenization. Aboveground woody biomass and carbon stocks were more than 300 times higher under woody encroachment, showing a strong negative relationship with species richness. Non-woody biomass did not differ between <i>veredas</i>, but showed higher water content in non-encroached conditions. Encroachment also led to lower soil pH, phosphorus, potassium, and cation saturation.</p> Conclusions <p>Woody encroachment profoundly alters vegetation structure, compositional heterogeneity, and soil properties in <i>veredas</i>, promoting woody dominance at the expense of herbaceous diversity, and potentially compromising wetland functioning.</p>