We explored the net effects of grazing on soil C and N pools in a Patagonian shrub-grass steppe (temperate South America). Net effects result from the combination of direct impacts of grazing on biogeochemical characteristics of microsites with indirect effects on relative cover of vegetated and unvegetated microsites. Within five independent areas, we sampled surface soils in sites subjected to three grazing intensities: 1) ungrazed sites inside grazing exclosures, 2) moderately grazed sites adjacent to them, and 3) intensely grazed sites within the same paddock. Grazing significantly reduced soil C and N pools, although this pattern was clearest in intensely grazed sites. This net effect was due to the combination of a direct reduction of soil N content in bare soil patches, and indirect effects mediated by the increase of the cover of bare soil microsites, with lower C and N content than either grass or shrub microsites. This increase in bare soil cover was accompanied by a reduction in cover of preferred grass species and standing dead material. Finally, stable isotope signatures varied significantly among grazed and ungrazed sites, with δ15N and δ13C significantly depleted in intensely grazed sites, suggesting reduced mineralization with increased grazing intensity. In the Patagonian steppe, grazing appears to exert a negative effect on soil C and N cycles; sound management practices must incorporate the importance of species shifts within life form, and the critical role of standing dead material in maintaining soil C and N stocks and biogeochemical processes.