Background and aims <p>Vegetation recovery in degraded drylands often leads to the co-occurrence of vascular plants and biocrusts, yet the implications of this spatial structure for potential carbon (C) sequestration remain poorly understood. While biocrusts are recognized as important contributors to soil C storage in open microsites, their functional role beneath vascular plant canopies has been largely overlooked.</p> Methods <p>We combined in-situ C flux measurements with a ¹³C-CO² pulse-labeling experiment to quantify the influence of shrub canopy on C assimilation and vertical transport by cyanobacterial-moss biocrusts in a semiarid ecosystem dominated by <i>Artemisia ordosica</i>.</p> Results <p>Biocrusts-covered soils exhibited net C release regardless of canopy presence during the growing season. However, shrub canopy significantly reduced gross primary production (–26%) and ecosystem respiration (–13%) of biocrusts, primarily by lowering soil moisture. This suppression of C fixation led to greater net C emission, with mean net ecosystem exchange of 1.27&#xa0;μmol&#xa0;m^–2&#xa0;s^–1 under canopy vs. 1.19&#xa0;μmol&#xa0;m^–2&#xa0;s^–1 without canopy. Lower <i>δ</i>¹³C enrichment and limited ¹³C translocation into subsurface soils under canopy further indicated that canopy-modified microhabitats can constrain the contribution of biocrust-derived inputs to soil C.</p> Conclusions <p>Our findings reveal a functional trade-off in shrub-biocrusts interactions: shrub canopy facilitates long-term biocrust persistence by buffering environmental extremes, yet can limit their short-term C input to the soil. These results challenge the assumption of additive C gains in plant-biocrusts systems and underscore the need to account for canopy effects in C budgets. Given the widespread shrub-biocrusts co-occurrence in drylands, we suggest managing shrub traits to balance structural stability with surface inputs of C and nutrients from biocrusts, thereby maximizing their complementary ecological functions.</p>