Biotic ecosystem engineers are increasingly recognized as important drivers of biodiversity, structure, and function in many ecosystems. By regulating physical processes and creating local disturbances, ecosystem engineers can serve as important elements of passive habitat restoration, as they continuously alter and shape their environments. Native to North American temperate wetlands, the common muskrat (Ondatra zibethicus) is an ecosystem engineer that alters its environment through herbivory, house and structure building, and creation of activity networks. While the physical consequences of muskrat disturbances are well-known, few studies have quantified their impact on the wetland biotic community. We conducted a field study to investigate the effects of muskrat herbivory and structure building on plant biodiversity in wetlands along the upper St. Lawrence River (New York, USA) that have been extensively modified by long-term water regulation and non-native cattail invasion. Plant species richness and diversity were greater in muskrat-disturbed areas compared to at-large reference plots within the same wetlands. Soil saturation mediated the biodiversity impacts of muskrats, with intermediate moisture levels resulting in the highest species richness. These interacting drivers, muskrat activity and hydrology, had a compensatory effect on plant biodiversity loss associated with non-native cattail invasion. Multivariate analysis indicated a distinct plant community associated with muskrat disturbances. Analysis of spatiotemporal patterns of house locations suggests that some muskrats reuse house locations in sequential years, likely amplifying the intensity and duration of their impacts. This study demonstrates that muskrat disturbance influences wetland plant diversity at scales relevant to regional drivers of plant diversity.