Forest and grassland ecosystems are sometimes located adjacently within the same climate. In Interior British Columbia, Canada, there are complex forest–grassland mosaics within the Interior Douglas‐fir biogeoclimatic zone. Historically, both grassland and forest ecosystems experienced high‐frequency, low‐severity fire regimes. Since European settlement and introduction of livestock grazing and fire exclusion, trees have encroached on grasslands, and tree densities in forests have increased. In this study, we characterize plant communities and near‐surface soil moisture in forest and grassland sites, and in historical grassland sites affected by tree encroachment. We hypothesized that spatial and temporal patterns of near‐surface soil moisture are reflected in aboveground plant community composition and structure. After initial sampling of soil moisture and plant communities, the study area was burned in a wildfire. Applying a multifactorial approach to comparing adjacent grassland and forest sites, we treated the wildfire event as a natural experiment, sampling post‐wildfire plant species composition and soil moisture, and measuring the severity and spatial heterogeneity of surface burn conditions. Evidence supports the concept of mutually exclusive fire‐reinforced bistable grassland and forest states, with greater spatial heterogeneity of soil moisture and burn severity in forests, and highly uniform patterns of soil moisture, vegetation, and burn severity in grasslands. Areas of forest encroachment on grasslands had understory plant communities dominated by exotic species, while restored grasslands had native bunchgrass cover like typical grasslands of the region. Additionally, there was post‐wildfire divergence of forest‐ and grassland‐associated plant communities. Viewed through a resilience theory conceptual framework, we suggest that ecosystem legacies are reinforcing post‐wildfire ecosystem identity and associated native plant communities. External factors—particularly past heavy livestock grazing and fire suppression—have caused ecosystem precariousness that can be addressed with management actions.