Perennial grain cropping systems could address a number of contemporary agroecological problems, including soil degradation, NO3 leaching, and soil C loss. Since it is likely that these systems will be rotated with other agronomic crops, a better understanding of how rapidly perennial grain systems improve local ecosystem services is needed. We quantified soil moisture, lysimeter NO3 leaching, soil labile C accrual, and grain yields in the first 2 yr of a perennial grain crop under development [kernza wheatgrass, Thinopyrum intermedium (Host) Barkworth & D.R. Dewey] relative to annual winter wheat (Triticum aestivum L.) under three management systems. Overall, differences between annual and perennial plants were much greater than differences observed due to management. In the second year, perennial kernza reduced soil moisture at lower depths and reduced total NO3 leaching (by 86% or more) relative to annual wheat, indicating that perennial roots actively used more available soil water and captured more applied fertilizer than annual roots. Carbon mineralization rates beneath kernza during the second year were increased 13% compared with annual wheat. First‐year kernza grain yields were 4.5% of annual wheat, but second year yields increased to 33% of wheat with a harvest index of 0.10. Although current yields are modest, the realized ecosystem services associated with this developing crop are promising and are a compelling reason to continue breeding efforts for higher yields and for use as a multipurpose crop (e.g., grain, forage, and biofuel).