Across the globe, native savannas and woodlands are undergoing conversion to exotic grasslands. Here we summarize the current state of knowledge concerning the ecohydrological consequences of this conversion for the cold deserts (Great Basin, Colorado Plateau) and the warm deserts (Mojave, Sonoran, Chihuahuan) of North America. Our analysis is based on a synthesis of relevant literature, complemented by simulation modelling with a one-dimensional, soil water redistribution model (HYDRUS-1D) and a hillslope runoff and erosion model (MAHLERAN). When shrublands are invaded by grasses, many changes take place: rooting depths, canopy cover, species heterogeneity, water use, and fire regimes are radically altered. These changes then have the potential to alter key ecohydrological processes. With respect to the processes of runoff and erosion, we find that grass invasion influences cold and warm deserts in different ways. In cold deserts, runoff and erosion will increase following invasion; in particular, erosion on steep slopes (>15%) will be greatly accelerated following burning. In addition, evapotranspiration (ET) will be lower and soil water recharge will be higher—which after several decades could affect groundwater levels. For warm deserts, grass invasion may actually reduce runoff and erosion (except for periods immediately following fire), and is likely to have little effect on either ET fluxes or soil water. Significant gaps in our knowledge do remain, primarily because there have been no comprehensive studies measuring all components of the water and energy budgets at multiple scales. How these changes may affect regional energy budgets, and thus weather patterns, is not yet well understood. Copyright © 2011 John Wiley & Sons, Ltd.