AbstractClimate change predictions include warming and drying trends, which are expected to be particularly pronounced in the southwestern United States. In this region, grassland dynamics are tightly linked to available moisture, yet it has proven difficult to resolve what aspects of climate drive vegetation change. In part, this is because it is unclear how heterogeneity in soils affects plant responses to climate. Here, we combine climate and soil properties with a mechanistic soil water model to explain temporal fluctuations in perennial grass cover, quantify where and the degree to which incorporating soil water dynamics enhances our ability to understand temporal patterns, and explore the potential consequences of climate change by assessing future trajectories of important climate and soil water variables. Our analyses focused on long‐term (20–56 years) perennial grass dynamics across the Colorado Plateau, Sonoran, and Chihuahuan Desert regions. Our results suggest that climate variability has negative effects on grass cover, and that precipitation subsidies that extend growing seasons are beneficial. Soil water metrics, including the number of dry days and availability of water from deeper (>30 cm) soil layers, explained additional grass cover variability. While individual climate variables were ranked as more important in explaining grass cover, collectively soil water accounted for 40–60% of the total explained variance. Soil water conditions were more useful for understanding the responses of C3 than C4 grass species. Projections of water balance variables under climate change indicate that conditions that currently support perennial grasses will be less common in the future, and these altered conditions will be more pronounced in the Chihuahuan Desert and Colorado Plateau. We conclude that incorporating multiple aspects of climate and accounting for soil variability can improve our ability to understand patterns, identify areas of vulnerability, and predict the future of desert grasslands.