Summary1. Leaf litter constitutes the major source of organic matter and energy in woodland stream ecosystems. A substantial part of leaf litter entering running waters may be buried in the streambed as a consequence of flooding and sediment movement. While decomposition of leaf litter in surface waters is relatively well understood, its fate when incorporated into river sediments, as well as the involvement of invertebrate and fungal decomposers in such conditions, remain poorly documented.2. We tested experimentally the hypotheses that the small interstices of the sediment restrict the access of the largest shredders to buried organic matter without compromising that of aquatic hyphomycetes and that fungal decomposers in the hyporheic zone, at least partly, compensate for the role of invertebrate detritivores in the benthic zone.3. Alder leaves were introduced in a stream either buried in the sediment (hyporheic), buried after 2 weeks of exposure at the sediment surface (benthic‐hyporheic), or exposed at the sediment surface for the entire experiment (benthic). Leaf decomposition was markedly faster on the streambed surface than in the two other treatments (2.1‐ and 2.8‐fold faster than in the benthic‐hyporheic and hyporheic treatments, respectively).4. Fungal assemblages were generally less diverse in the hyporheic habitat with a few species tending to be relatively favoured by such conditions. Both fungal biomass and sporulation rates were reduced in the hyporheic treatment, with the leaves subject to the benthic‐hyporheic treatment exhibiting an intermediate pattern. The initial 2‐week stage in the benthic habitat shaped the fungal assemblages, even for leaves later subjected to the hyporheic conditions.5. The abundance and biomass of shredders drastically decreased with burial, except for Leuctra spp., which increased and was by far the most common leaf‐associated taxon in the hyporheic zone. Leuctra spp. was one of the rare shredder taxa displaying morphological characteristics that increased performance within the limited space of sediment interstices.6. The carbon budgets indicated that the relative contributions of the two main decomposers, shredders and fungi, varied considerably depending on the location within the streambed. While the shredder biomass represented almost 50% of the initial carbon transformed after 80 days in the benthic treatment, its contribution was <0.3% in the hyporheic one and 2.0% in the combined benthic‐hyporheic treatment. In contrast, mycelial and conidial production in the permanently hyporheic environment accounted for 12% of leaf mass loss, i.e. 2–3 times more than in the two other conditions. These results suggest that the role of fungi is particularly important in the hyporheic zone.7. Our findings indicate that burial within the substratum reduces the litter breakdown rate by limiting the access of both invertebrate and fungal decomposers to leaves. As a consequence, the hyporheic zone may be an important region of organic matter storage in woodland streams and serve as a fungal inoculum reservoir contributing to further dispersal. Through the temporary retention of litter by burial, the hyporheic zone must play a significant role in the carbon metabolism and overall functioning of headwater stream ecosystems.