Parasitic plants are one of the most ubiquitous groups of generalist parasites in both natural and managed ecosystems, with over 3,000 known species worldwide. Although much is known about how parasitic plants influence host performance, their role as drivers of community- and ecosystem-level properties remains largely unexplored. Parasitic plants have the potential to influence directly the productivity and structure of plant communities because they cause harm to particular host plants, indirectly increasing the competitive status of non-host species. Such parasite-driven above-ground effects might also have important indirect consequences through altering the quantity and quality of resources that enter soil, thereby affecting the activity of decomposer organisms. Here we show in model grassland communities that the parasitic plant Rhinanthus minor, which occurs widely throughout Europe and North America, has strong direct effects on above-ground community properties, increasing plant diversity and reducing productivity. We also show that these direct effects of R. minor on the plant community have marked indirect effects on below-ground properties, ultimately increasing rates of nitrogen cycling. Our study provides evidence that parasitic plants act as a major driver of both above-ground and below-ground properties of grassland ecosystems.