Despite widespread evidence that biological invasion influences the biotic and abiotic soil environments, the extent to which each of these pathways underpins the effects of invasion on native plant traits and performance is unknown. Leveraging a long-term (14-yr) manipulative field experiment, we show that an allelochemical-producing invader, Alliaria petiolata, affects native plants through biotic mechanisms, altering the soil fungal community composition, with no apparent shifts in soil nutrient availability. These changes in belowground soil fungal communities resulted in a high cost of resource uptake for native forest perennial herbs and a shift in functional traits linked to their carbon and nutrient economies. Furthermore, we illustrate that some species in the invaded community compensate for high nutrient costs by reducing nutrient uptake and maintaining photosynthesis by expending more water. This demonstrates a trade-off in trait investment that increases nutrient use efficiency as nutrient costs increase. Our results show that invasion-induced disruptions in the soil fungal community belowground can cascade to affect aboveground plant communities via shifts in physiological traits needed to maintain plant water and nutrient economies. These complex above-belowground linkages suggest that plant invasions should be evaluated at the system-level to fully understand and predict their impact on native plants and communities.