1. Shrub encroachment has dramatically altered the structure and functioning of many dryland ecosystems worldwide. While positive effects of shrubs on their understorey are commonly found (patch-level effects), these effects can be either positive or negative when scaled up to the community or landscape level (landscape-level effects). These contrasting results are likely to be caused by differences in the degree of shrub encroachment or grazing pressure among studies. No study has addressed the relationship between the patch-level effects of shrubs and the degree of shrub encroachment (i.e., their density or cover) within the landscape, and how this relationship is influenced by grazing. 2. We examined how differences in grazing pressure and the degree of shrub encroachment, as measured by shrub cover, influences patch-level effects of shrubs on multiple soil and plant attributes (plant density, biomass and similarity between shrub-open areas, and soil stability, nutrient cycling, and infiltration) in two semi-arid Australian woodlands. 3. Shrubs had consistently positive effects on all plant and soil variables evaluated and, contrary to expectation, these positive effects did not decline with increasing shrub cover. Rather, these positive patch-level effects became larger or remained constant as shrub cover increased, depending on the studied variable and site. Heavy grazing negatively affected most of the variables studied, and altered the relationship between patch-level effects of shrubs and their landscape-level cover in half of the variables examined. In these cases, heavy grazing dampened the positive relationship between the strength of the positive patch-level effect and shrub cover. Synthesis: Shrubs positively affected plant and soil attributes, and this positive effect can generally be expected, or even increase, for stands up to 50% landscape-level cover. Heavy grazing, however, dampens the positive relationship between shrub effects at the patch level and their cover at the landscape level. Our results will help to reconcile the contrasting results found for the ecological effects of shrub encroachment in the literature and further refine our predictions on the effects of woody encroachment on ecosystem structure and functioning.