Litter decomposition often represents the largest carbon (C) and nitrogen (N) input into the soil and thereby supports soil nutrition cycling function. Common mycelial networks (CMNs) can promote soil C and N trades during the litter decomposition process. However, the degree to which this promotion depends on abiotic variables, such as drought, remains unresolved. Importantly, the influence of soil fungi mycelium on the turnover of litter-derived C and N could weaken under drought if disrupts fungal hyphae. Here, we used plant litter of stable isotope dual-labeling (13C and 15N), experimental drought (ambient, 30%, 50%, or 70% growing season precipitation reductions), and physical disruption to soil fungal hyphae (via soil core rotation) to investigate decomposition dynamics along the soil-plant-atmosphere continuum in a temperate grassland. On average, drought significantly slowed plant litter decomposition by up to 31.8%, but undisrupted fungal hyphae accelerated litter decomposition by up to 31.7% and promoted the release of C and N from plant litter. The intactness of fungal hyphae would have divergent effects on the allocation of litter-derived C and N during decomposition under drought conditions. Intact soil fungal hyphae contributed about 47% of litter-derived C transfer into soil microbial biomass after litter decomposition, but no significant effects in the soil, plant aboveground, or CO2 emissions, compared to hyphae disruption treatment. Undisrupted hyphae promoted approx. 82% of the turnover of litter-derived N from soil to plant and reduced content of litter-derived N in soil and N2O emission compared to hyphae disruption. We conclude that intact networks of soil fungal hyphae are essential to maintaining litter decomposition processes under drought conditions in temperate grassland ecosystems because the fungi promote releases of carbon and nitrogen from plant litter that facilitate carbon and nitrogen cycling.