Woody plant encroachment into former grasslands currently represents a major physiognomic shift globally. Seedling establishment is a critical demographic bottleneck and is considered to be alleviated by increases in water availability and negatively impacted by interactions with grasses, particularly when water stress increases. However, interactions with grasses that are not actively competing for resources (‘passive interactions’ when grasses are dead) has seldom been considered. Could the transition from a live to a dead grass (litter) canopy favour recruitment of woody seedlings in a semi-arid grassland of the American SW? How does the sign and intensity of grass–seedling interactions change across drastically different summer precipitation regimes with and without passive interactions?