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Intensive arable cropping depletes soil organic carbon and earthworms, leading to loss of macropores, and impaired hydrological functioning, constraining crop yields and exacerbating impacts of droughts and floods that are increasing with climate change. Grass and legume mixes traditionally grown in arable rotations (leys), are widely considered to regenerate soil functions, but there is surprisingly limited evidence of their effects on soil properties, resilience to rainfall extremes, and crop yields. Using topsoil monoliths taken from four intensively cropped arable fields, 19 month-old grass-clover ley strips in these fields, and from 3 adjacent permanent grasslands, effects on soil properties, and wheat yield in response to four-weeks of flood, drought, or ambient rain, during the stem elongation period were evaluated. Compared to arable soil, leys increased earthworm numbers, infiltration rates, macropore flow and saturated hydraulic conductivity, and reduced compaction (bulk density) resulting in improved wheat yields by 42–95 % under flood and ambient conditions. The leys showed incomplete recovery compared to permanent grassland soil, with modest gains in soil organic carbon, total nitrogen, water-holding capacity, and grain yield under drought, that were not significantly different (P > 0.05) to the arable controls. Overall, grass-clover leys regenerate earthworm populations and reverse structural degradation of intensively cultivated arable soil, facilitating adoption of no-tillage cropping to break out of the cycle of tillage-driven soil degradation. The substantial improvements in hydrological functioning by leys will help to deliver reduced flood and water pollution risks, potentially justifying payments for these ecosystem services, especially as over longer periods, leys increase soil carbon sequestration.