Wildfires and alien grass invasion threaten dry tropical forests throughout Central America. Efforts to preserve and restore these forests will require a better understanding of how conversion to grassland changes key belowground processes and organisms such as soil organic matter, nutrient cycling, and mycorrhizae. We studied forest, edge, and grassland soils from five 60-m transects perpendicular to abrupt forest–grassland boundaries in Guanacaste Province, Costa Rica. Nutrient concentrations, N mineralization dynamics, and mycorrhizal fungal communities were compared across vegetation type (forest, edge, and grassland). The dynamics of N mineralization were measured in year-long laboratory incubations, and the diversity of mycorrhizal fungal communities was assessed from populations of soil-borne spores. Soil C, N, and K were lower, while many base cations and micronutrients were higher in grassland plots than in forest plots. Although differences in the quantity of total soil C and N occurred mainly in the forest-to-edge transition, differences in the quality of soil organic matter, as reflected by soil C:N ratios and mineralization rates, occurred in the edge-to-grassland transition. Beta diversity of mycorrhizal spore communities (measured by Sorenson’s similarity index) was lower in the grassland plots than in the forest plots, indicating that grass invasion had caused some convergence. However, total spore density and alpha diversity of mycorrhizal spore communities (measured by species richness and Simpson’s diversity index) were not altered by wildfires and grass invasion. These results suggest that persistence and regeneration of forest plant species in the grasslands may not be constrained to a significant degree by the lack of mycorrhizal symbionts. These grasslands appear to be sustainable, alternative stable states for these areas. Positive feedbacks between the alien grassland vegetation and both fire and nutrient cycling maintain and reinforce this alternative state.