Classic resource competition theory typically treats resource supply rates as independent; however, nutrient supplies can be affected by plants indirectly, with important consequences for model predictions. We demonstrate this general phenomenon by using a model in which competition for nitrogen is mediated by soil moisture, with competitive outcomes including coexistence and multiple stable states as well as competitive exclusion. In the model, soil moisture regulates nitrogen availability through soil moisture dependence of microbial processes, leaching, and plant uptake. By affecting water availability, plants also indirectly affect nitrogen availability and may therefore alter the competitive outcome. Exotic annual species from the Mediterranean have displaced much of the native perennial grasses in California. Nitrogen and water have been shown to be potentially limiting in this system. We parameterize the model for a Californian grassland and show that soil moisture–mediated competition for nitrogen can explain the annual species’ dominance in drier areas, with coexistence expected in wetter regions. These results are concordant with larger biogeographic patterns of grassland invasion in the Pacific states of the United States, in which annual grasses have invaded most of the hot, dry grasslands in California but perennial grasses dominate the moister prairies of northern California, Oregon, and Washington.