Regime shift from grasslands to shrub-dominated landscapes occur worldwide driven by altered land-use and climate change, affecting landscape function, biodiversity, and productivity. Warming winter temperatures are a main driver of expansion of the native, evergreen shrub, Morella cerifera, in coastal landscapes. Shrub establishment in these habitats alters microclimate, but little is known about seasonal differences and microclimate variance. We assessed influence of shrubs on microclimate variance, community composition, and community physiological functioning across three vegetation zones: grass, transitional, and shrub in a coastal grassland. Using a novel application of a timeseries analysis, we interpret microclimatic variance modification and elucidate mechanisms of shrub encroachment at the Virginia Coast Reserve, Long-Term Ecological Research site. As shrub thickets form, diversity is reduced with little grass/forb cover, while transpiration and annual productivity increase. Shrub thickets significantly reduced temperature variance with a positive influence of one day on the next in maximum air, minimum air, and maximum ground temperature. We also show that microclimatic temperature moderation reduces summer extreme temperatures in transition areas, even before coalescence into full thickets. Encroachment of Morella cerifera on the Virginia barrier islands is driven by reduced local exposure to cold temperatures and enhanced by abiotic microclimatic modification and biotic physiological functioning. This shift in plant community composition from grassland to shrub thicket alters the role of barrier islands in productivity and can have impacts on the natural resilience of the islands. Woody vegetation is rapidly encroaching into grassland globally as a result of altered environmental drivers 1-3. The abrupt conversion to shrub-dominated habitats includes drivers such as altered fire or grazing pressures, increased atmospheric CO 2 , and altered temperature ranges 3-6. Warming temperatures associated with macroclimatic change, particularly in winter minima, can expand the range limits of cold-intolerant shrub species 3,6-8 while macroclimatic variance in precipitation enhances success of woody vegetation, particularly in the transition ecotones 9,10. Thus, no single factor provides dominant influence on woody encroachment. Increased annual temperatures may improve physiological functioning of encroaching species, possibly as a feedback between abiotic microclimatic conditions and shrub success to promote range expansion for woody shrubs 3,7. On smaller scales, encroaching woody vegetation frequently modifies microclimatic conditions resulting in intra-and interspecific facilitation 11-14. Changes in microclimatic temperatures within shrub thickets include temperature moderation with diminished instances of extreme temperatures that can decrease productivity and cause physiological damage of xylem structures 3,6. In areas with warming winter temperatures, thicket-forming species that are vulnerable to cold...