© 2019 Mediterranean-type ecosystems are increasingly threatened by climate change and exotic annual species, jeopardizing the native communities and their global biodiversity. In these systems, soil nitrogen (N) limits net primary production, and its availability can be influenced by both of these stressors. To understand the interactive effects of droughts and exotic herbaceous species on soil N, we monitored the temporal variability of soil inorganic N, net N mineralization, net nitrification, and NO3- leaching under native- and exotic-dominated stands exposed to rainfall manipulation plots in a Mediterranean-type shrub-dominated community. Increasing drought severity resulted in the accumulation of soil NH4+ and NO3-, with a more pronounced increase in exotic-dominated plots. Increased net N mineralization and net nitrification and reduced leaching losses were observed as mechanisms of inorganic N accumulation. In comparison to soils under native plants, soils under exotic plants had enhanced leaching losses upon soil rewetting. We propose that distinct traits of exotic annual herbaceous species associated with higher N inputs, faster turnover, and reduced temporal uptake determine the changes in N cycling in response to droughts. Severe droughts and exotic plants may produce a larger, more vulnerable pool of N that is prone to losses while providing a competitive advantage to promote exotic growth in these N-limited ecosystems.