Changes in climate and in browsing pressure are expected to alter the abundance of tundra shrubs thereby influencing the composition and species richness of plant communities. We investigated the associations between browsing, tundra shrub canopies and their understory vegetation by utilizing a long-term (10–13 seasons) experiment controlling reindeer and ptarmigan herbivory in the subarctic forest tundra ecotone in northwestern Fennoscandia. In this area, there has also been a consistent increase in the yearly thermal sum and precipitation during the study period. The cover of shrubs increased 2.8–7.8 fold in exclosures and these contrasted with browsed control areas creating a sharp gradient of canopy cover of tundra shrubs across a variety of vegetation types. Browsing exclusions caused significant shifts in more productive vegetation types, whereas little or no shift occurred in low-productive tundra communities. The increased deciduous shrub cover was associated with significant losses of understory plant species and shifts in functional composition, the latter being clearest in the most productive plant community types. The total cover of understory vegetation decreased along with increasing shrub cover, while the cover of litter showed the opposite response. The cover of cryptogams decreased along with increasing shrub cover, while the cover of forbs was favoured by a shrub cover. Increasing shrub cover decreased species richness of understory vegetation, which was mainly due to the decrease in the cryptogam species. The effects were consistent across different types of forest tundra vegetation indicating that shrub increase may have broad impacts on arctic vegetation diversity. Deciduous shrub cover is strongly regulated by reindeer browsing pressure and altered browsing pressure may result in a profound shrub expansion over the next one or two decades. Results suggest that the impact of an increase in shrubs on tundra plant richness is strong and browsing pressure effectively counteracts the effects of climate warming-driven shrub expansion and hence maintains species richness.