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Global concerns for desertification have focused on the slow recovery of extensive and expanding drylands following disturbance, which may be exacerbated by climate change. Biological soil crusts (biocrusts) are photosynthetic soil communities found in drylands worldwide, which are central to the stability and resilience of dryland ecosystems, but vulnerable to global change. Here we use multiple decade-long experiments to investigate the consequences of climate and land-use change on biocrusts and soil stability. Biocrusts recovered rapidly under ambient temperatures but warming interacted with the precipitation disturbance to halt recovery. Moreover, warming alone caused losses of mosses, lichens and soil stability. Our results present a new mechanism contributing to land degradation in drylands whereby warming drives a state shift in biocrust communities, which degrades soil stability. The synergistic effects of climate and land-use change co-occur globally and our results support projections of increased desertification and lowered dryland resilience under warming.