Biological activity in arid grasslands is strongly dependent on moisture. We examined gas exchange of biological soil crusts (biocrusts), the underlying soil biotic community, and the belowground respiratory activity of C3 and C4 grasses over 2 years in southeast Utah, USA. We used soil surface CO2 flux and the amount and carbon isotope composition (δ13C) of soil CO2 as indicators of belowground and soil surface activity. Soil respiration was always below 2 μmol m−2 s−1 and highly responsive to soil moisture. When moisture was available, warm spring and summer temperature was associated with higher fluxes. Moisture pulses led to enhanced soil respiration lasting for a week or more. Biological response to rain was not simply dependent on the amount of rain, but also depended on antecedent conditions (prior moisture pulses). The short-term temperature sensitivity of respiration was very dynamic, showing enhancement within 1–2 days of rain, and diminishing each day afterward. Carbon uptake occurred by cyanobacterially dominated biocrusts following moisture pulses in fall and winter, with a maximal net carbon uptake of 0.5 μmol m−2 s−1, although typically the biocrusts were a net carbon source. No difference was detected in the seasonal activity of C3 and C4 grasses, contrasting with studies from other arid regions (where warm- versus cool-season activity is important), and highlighting the unique biophysical environment of this cold desert. Contrary to other studies, the δ13C of belowground respiration in the rooting zone of each photosynthetic type did not reflect the δ13C of C3 and C4 physiology.