1. Recent evidence highlights the importance of low-abundant subordinate plant species in regulating ecosystem functions in grasslands experiencing drought via plant–microbe interactions. We hypothesized that subordinate and dominant species have distinct carbon (C) allocation and nitrogen (N) uptake patterns affecting soil microbes and their functions during a drought event. 2. We collected soil cores with individuals of Paspalum dilatatum (dominant) or Cynodon dactylon (subordinate) from two independent field drought experiments in mesic Australian grasslands. Cores were subjected to a dual pulse labelling with 13CO2 and 15NH4 15NO3. Stable isotopes were traced in plant biomass and the microbial community (PLFA-SIP, DNA/RNA-SIP and NanoSIM), and soil nutrient cycling was measured via enzymatic activities. 3. The subordinate species invested more C below-ground and had higher N uptake in response to drought compared to the dominant, and the active soil microbial community displayed small but consistent differences. The subordinate species showed higher arbuscular mycorrhizae colonization rates but with similar C exchange to the dominant species in response to drought. 4. Synthesis. Our results suggest that the subordinate species achieves higher drought resistance in biomass and soil functions via increased below-ground functioning. The data presented here provide a basis to explain the underlying mechanisms behind the response of grassland communities and their C cycling to drought.