Nitrogen availability is critically important to litter decomposition, especially in arid and semiarid areas where N is limiting. We studied the relative contributions of litter quality and soil N to litter decomposition of two dominant grassland species, Stipa krylovii and Artemisia frigida, in a semiarid typical steppe ecosystem in Inner Mongolia, China. The study had four different rates of N addition (0, 8, 32, and 64 g N m(-2) year(-1)), and litter samples were decomposed under varying site conditions and by litter types. Litter-mixing effects of the two species were also examined. We found that N addition increased litter N concentration and thus enhanced litter decomposition by improving substrate quality. This increase, however, was offset by the negative effect of increased soil N, resulting in a diminished effect of increased soil N availability on in situ litter decomposition. The positive effects of improved litter quality slightly out-performed the negative effects of increased soil N. Our further analysis revealed that the negative effect of increasing soil N on litter decomposition could be partially explained by reduced soil microbial biomass and activity. Decomposition was significantly faster for litters of a two-species mixture than litters of the single species, but the rate of litter decomposition did not differ much between the two species, suggesting that compositional balance, rather than changes in the dominance between Stipa and Artemisia, is more critical for litter decomposition, hence nutrient cycling in this ecosystem. This semiarid steppe ecosystem may become more conservative in nutrient use with switching of dominance from Artemisia to Stipa with increasing soil N, because Stipa has a slower decomposition rate and a higher nutrient retention rate than Artemisia.