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Abstract Hysteresis is a fundamental characteristic of alternative stable state theory, yet evidence of hysteresis is rare. In mesic grasslands, fire frequency regulates transition from grass‐ to shrub‐dominated system states. It is uncertain, however, if increasing fire frequency can reverse shrub expansion, or if grass‐shrub dynamics exhibit hysteresis. We implemented annual burning in two infrequently burned grasslands and ceased burning in two grasslands burned annually. With annual fires, grassland composition converged on that of long‐term annually burned vegetation due to rapid recovery of grass cover, although shrubs persisted. When annual burning ceased, shrub cover increased, but community composition did not converge with a long‐term infrequently burned reference site because of stochastic and lagged dispersal by shrubs, reflecting hysteresis. Our results demonstrated that annual burning can slow, but not reverse, shrub encroachment. In addition, reversing fire frequencies resulted in hysteresis because vegetation trajectories from grassland to shrubland differed from those of shrubland to grassland.