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Abstract Decadal scale lake drying in interior Alaska results in lake margin colonization by willow shrub and graminoid vegetation, but the effects of these changes on plant production, biodiversity, soil properties, and soil microbial communities are not well known. We studied changes in soil organic carbon (SOC) and nitrogen (N) storage, plant and microbial community composition, and soil microbial activities in drying and non‐drying lakes in the Yukon Flats National Wildlife Refuge. Historic changes in lake area were determined using Landsat imagery. Results showed that SOC storage in drying lake margins declined by 0.13 kg C m⁻² yr⁻¹over 30 years of exposure of lake sediments, with no significant change in soil N. Lake drying resulted in an increase in graminoid and shrub aboveground net primary production (ANPP, +3% yr⁻¹) with little change in plant functional composition. Increases in ANPP were similar in magnitude (but opposite in sign) to losses in SOC over a 30‐year drying trend. Potential decomposition rates and soil enzyme activities were lower in drying lake margins compared to stable lake margins, possibly due to high salinities in drying lake margin soils. Microbial communities shifted in response to changing plant communities, although they still retained a legacy of the previous plant community. Understanding how changing lake hydrology impacts the ecology and biogeochemistry of lake margin terrestrial ecosystems is an underexamined phenomenon with large impacts to landscape processes.