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Abstract Ecosystem responses to external inputs of nutrients and organisms are highly variable. Theory predicts that ecosystem traits will determine the responses to spatial subsidies, but evidence for how vegetation structure can modulate those effects is lacking. We investigated how vegetation structure (i.e., leaf area index [LAI] and vegetation height) influenced the ecosystem and community responses to insect spatial subsidies in a subarctic grassland. Our experiment consisted of a 2 × 2 manipulation where in one treatment we either blocked flying insects over a 2‐yr period in 1‐m²plots near the shore of Lake Mývatn, Iceland, where deposition of aquatic adult midges (Diptera: Chironomidae) to land is high, or left control plots accessible to flying midges. In the second treatment, grassland vegetation was cut (tall vs. short) at the start of each season and then allowed to regrow. We then measured litter decomposition and arthropod composition and density within each plot (n = 6 replicates × 4 treatments). Midge‐exclusion cages reduced midge deposition by 81% relative to the open plots. Vegetation cutting initially reduced LAI and vegetation height by 3× and 1.5×, respectively, but these were not different by the end of the second‐growing season. We found that vegetation structure modulated the effects of midge subsides on litter decomposition, with taller canopies intercepting more insect subsidies than shorter ones, leading to 18% faster litter decomposition. In contrast, the short‐vegetation plots intercepted fewer subsidies and had higher temperatures and sunlight, resulting in no effects of midges on decomposition. However, by the end of the experiment when all vegetation structure characteristics had converged across all plots, we found no differences in decomposition between treatments. The effects of midge subsidies on arthropod composition depended on the vegetation structure, suggesting that arthropods might also be responding to the structural effects on spatial subsidies. Our findings indicate that vegetation structure can modify the abiotic environment and the quantity of subsidies entering a recipient ecosystem as aerial insects, resulting in ecosystem‐ and community‐level responses. Thus, changing vegetation structure via habitat disturbances will likely have important implications for ecosystem functions that rely on spatial subsidies.