AbstractWoody plant encroachment (WPE) into grasslands has been occurring globally and may be accelerated by climate change in the future. This land cover change is expected to alter the carbon and water cycles, but it remains uncertain how and to what extent the carbon and water cycles may change with WPE into grasslands under current climate. In this study, we examined the difference of vegetation indices (VIs), evapotranspiration (ET), gross primary production (GPP), and solar‐induced chlorophyll fluorescence (SIF) during 2000–2010 between grasslands and juniper‐encroached grasslands. We also quantitatively assessed the changes of GPP and ET for grasslands with different proportions of juniper encroachment (JWPE). Our results suggested that JWPE increased the GPP, ET, greenness‐related VIs, and SIF of grasslands. Mean annual GPP and ET were, respectively, ~55% and ~45% higher when grasslands were completely converted into juniper forests under contemporary climate during 2000–2010. The enhancement of annual GPP and ET for grasslands with JWPE varied over years ranging from about +20% GPP (~+30% for ET) in the wettest year (2007) to about twice as much GPP (~+55% for ET) in the severe drought year (2006) relative to grasslands without encroachment. Additionally, the differences in GPP and ET showed significant seasonal dynamics. During the peak growing season (May–August), GPP and ET for grasslands with JWPE were ~30% and ~40% higher on average. This analysis provided insights into how and to what degree carbon and water cycles were impacted by JWPE, which is vital to understanding how JWPE and ecological succession will affect the regional and global carbon and water budgets in the future.