Changes in vegetation cover affect the interactions between the land surface and the overlying atmosphere with important impacts on surface energy balance and microclimate conditions. A major ongoing change in vegetation cover has been observed in dryland regions around the world, where desert shrubs are encroaching into arid grasslands. However, the impact of shrub encroachment on local climate has not been investigated. We used a mesoscale model coupled with a Land Surface Model to simulate the effects of shrub encroachment on nighttime temperatures. These effects can have an important effect on the establishment of shrubs and need to be represented well by land surface parameterization schemes that are also used in long-term climate simulations. Idealized 2-dimensional simulations were conducted with vegetation types corresponding to shrubland and grassland typical of the Northern Chihuahuan Desert. Simulated surface energy and radiation fluxes and near-ground air temperature were analyzed and compared with observations. Results show a good comparison between the simulations and observations as long as vegetation parameters are adjusted in the model to be in better agreement with the observed parameters. The sensitivity of the nighttime air temperatures to green vegetation fraction, albedo, emissivity and roughness length is investigated. The results indicate that the green vegetation fraction is the key factor that causes the higher nighttime temperature in shrubland than in adjacent grassland, mainly by its effects on soil surface insulation, soil thermal diffusivity, and therefore on ground heat fluxes.