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Retama sphaerocarpa shrubs in semi-and environments often have a dense understorey of annual and perennial herbs forming so-called “islands of fertility” The effect of the canopy on soil fertility and microclimate and the combined effect of canopy and litter on species diversity and productivity were assessed under Retama spliaerocarpa shrubs in a semi-and environment in southeast Spain Soil chemical properties differed significantly among three positions under the canopy, particularly between inner and outer positions The potential mineralization rate of organic matter was significantly higher in soils from an intermediate position under the canopy than in soils from either the centre and the edge Soil chemical fertility and estimated soil seed bank were highest also in soil at an intermediate position and lowest in soil from the edge The understorey flora was favoured by the lower temperature and irradiation and increased soil fertility under the shrubs canopies Species emerging from the soil seed bank separated clearly into two groups which occupied inner and outer positions under the canopy Different levels of addition of Retama litter significantly decreased species richness and the number of emerged seedlings In the field, pots placed near the centre, at an intermediate position and at the edge of the canopy of Retama shrubs differed significantly in species richness and biomass production Overall, micro-climatic conditions combined with increased chemical fertility of the soil and inhibitory effects of litter to produce a large biomass of herbs at intermediate positions between the centre and the edge of the canopy. The high proportion of litter from annual species in that position increases the mineralization rate and hence nutrient dynamics in a process which also could benefit the shrub