Climate change-induced rainfall reductions in Mediterranean forests negatively affect the decomposition of plant litter through decreased soil moisture. However, the indirect effects of reduced precipitation on litter decomposition through changes in litter quality and soil microbial communities are poorly studied. This is especially the case for fine root litter, which contributes importantly to forests plant biomass. Here we analyzed the effects of long-term (11 years) rainfall exclusion (29% reduction) on leaf and fine root litter quality, soil microbial biomass, and microbial community-level physiological profiles in a Mediterranean holm oak forest. Additionally, we reciprocally transplanted soils and litter among the control and reduced rainfall treatments in the laboratory, and analyzed litter decomposition and its responses to a simulated extreme drought event. The decreased soil microbial biomass and altered physiological profiles with reduced rainfall promoted lower fine root—but not leaf—litter decomposition. Both leaf and root litter, from the reduced rainfall treatment, decomposed faster than those from the control treatment. The impact of the extreme drought event on fine root litter decomposition was higher in soils from the control treatment compared to soils subjected to long-term rainfall exclusion. Our results suggest contrasting mechanisms driving drought indirect effects on above-(for example, changes in litter quality) and belowground (for example, shifts in soil microbial community) litter decomposition, even within a single tree species. Quantifying the contribution of these mechanisms relative to the direct soil moisture-effect is critical for an accurate integration of litter decomposition into ecosystem carbon dynamics in Mediterranean forests under climate change. PGP was funded by the People Programme (Marie Curie Actions) of the European Union’s Seventh Framework Programme (FP7/2007-2013) under REA Grant Agreement No DECOMFORECO-2011-299214.