Abstract Dryland forests, those characterised as having low precipitation and soil nutrients, account for over a quarter of forests globally. Increasing their productivity often relies on irrigation and fertilisation, but the impacts on the wider habitat are largely unknown. Understory invertebrates, in particular, play key roles in forest systems (e.g. nutrient cycling), but their responses to dryland forest management practices are untested. We investigated the impacts of irrigation, fertilisation and a combination of both on soil chemistry, understory vegetation, tree growth and understory arthropod communities in a Eucalyptus plantation to establish linkages between dryland management and ecosystem responses. Fertilisation increased all soil nutrients (N, NO 3 N, P and K) with similar effects on the chemical composition of understory grasses. Fertilisation also caused declines in foliar silicon concentrations, an important herbivore defence in grasses. Irrigation increased growth of both understory plants (+90%) and trees (+68%). Irrigation increased the abundance of ground‐dwelling arthropods by over 480% relative to control plots, but depressed higher level taxon arthropod diversity by 15%, declining by a further 7% (−22%) in combined treatment plots. Irrigation also caused a surge in the abundance of Collembola (+1300%) and Isopoda (+323%). Fertilisation drove increases in the abundance of Isopoda (+196%) and Diptera (+63%), whereas fertilisation combined with irrigation increased populations of Thysanoptera (+166%) and Acarina (+328%). Airborne arthropods were less affected, but fertilisation increased the abundance of Apocrita (+95%) and depressed populations of Thysanoptera (−77%). Diptera abundance was positively related to understory vegetation growth, whereas the abundance of other groups (Collembola, Isopoda, Thysanoptera and Acarina) correlated positively with tree growth. We proposed that the large increases in populations of key detritivores, Collembola and Isopoda, were linked to increased leaf litter from enhanced tree growth in irrigated and combined treatment plots. Our findings suggest that dryland management can increase both plant productivity and abundance of arthropods, but cause arthropod diversity at the higher taxon level to decline overall.