Shrub encroachment induced by global change and human disturbance strongly affects ecosystem structure and function. In this study, we explore the degree to which invading leguminous shrubs affected neighboring grasses, including via the transfer of fixed nitrogen (N). We measured N concentrations and natural abundance 15N of shoot tissues from three dominant grasses from different plant functional groups across seven distances along a local transect (up to 500 cm) to the leguminous shrub, Caragana microphylla. C. microphylla did transfer fixed N to neighboring grasses, but the amount and distance of N transferred were strongly species-specific. Shoot N concentrations decreased significantly with distance from C. microphylla, for a rhizomatous grass, Leymus chinensis, and a bunchgrass, Achnatherum sibiricum. However, N concentrations of another bunchgrass, Stipa grandis, were higher only directly underneath the shrub canopy. Shoot δ15N values of L. chinensis were enriched up to 500 cm from the shrub, but for S. grandis were enriched only below the shrub canopy. In contrast, δ15N of A. sibiricum did not change along the 500-cm transect. Our results indicated the rhizomatous grass transferred fixed N over long distances while bunchgrasses did not. The presence of C. microphylla increased the shoot biomass of L. chinensis but decreased that of S. grandis and A. sibiricum. These findings highlight the potential role of nutrient-acquisition strategies of neighboring grasses in moderating the interspecific variation of fixed N transfer from the leguminous shrub. Overall, leguminous shrubs have either positive or negative effects on the neighboring grasses and dramatically affect plant community composition and structure.