Changes in species richness, turnover, composition and above-ground biomass of herb-rich woodland were documented following fertilizer application and water addition over three growing seasons. Addition of fertilizer significantly reduced species richness relative to unmanipulated control and water addition plots after 3 years. This change coincided with significant increases in biomass, which were largely due to increased growth of exotic annual grasses. The reductions in richness observed in the fertilized plots were a consequence of both lower rates of local colonization and enhanced rates of local extinction of the resident species. Species loss was not random; native species were lost after nutrient addition whereas exotic species were not. Nutrient limitation was more important for species coexistence in these communities than was water availability.