Biological soil crusts (BSCs), which are widespread in arid and semiarid regions, such as sandy deserts, strongly influence terrestrial ecosystems. Once sand-binding vegetation has been established on sand dunes, BSCs are colonized and gradually develop from cyanobacteria dominated crusts to lichen and moss dominated crusts on dune surfaces. We conducted this study to determine if the occurrence and development of BSCs in the Tengger Desert could be used to determine sand-binding vegetation changes via altering soil moisture and water cycling using long-term monitoring data and field experimental observation. BSCs changed the spatiotemporal pattern of soil moisture and re-allocation by decreasing rainfall infiltration, increasing topsoil water-holding capacity and altering evaporation. Changes in the soil moisture pattern induced shifting of sand-binding vegetation from xerophytic shrub communities with higher coverage (35%) to complex communities dominated by shallow-rooted herbaceous species with low shrub coverage (9%). These results imply that BSCs can be a major factor controlling floristic and structural changes in sand-binding vegetation and suggest that the hydrological effects of BSCs must be considered when implementing large-scale revegetation projects in sandy deserts. Copyright © 2010 John Wiley & Sons, Ltd.