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European dry thin-soil calcareous grasslands (alvars) are species-rich semi-natural habitats. Cessation of traditional management, such as mowing and grazing, leads to shrub and tree encroachment and the local extinction of characteristic alvar species. While soil microbes are known to play a critical role in driving vegetation and ecosystem dynamics, more information is needed about their composition and function in grasslands of different dynamic stages. Here we assess the composition of soil fungal, prokaryotic, and plant communities using soil environmental DNA from restored alvar grasslands in Estonia. The study areas included grasslands that had experienced different degrees of woody encroachment prior to restoration (woody plant removal and grazing), as well as unmanaged open grasslands. We found that, in general, different taxonomic groups exhibited correlated patterns of between-community variation. Previous forest sites, which had prior to restoration experienced a high degree of woody encroachment by ectomycorrhizal Scots pine, were compositionally most distinct from managed open grasslands, which had little woody vegetation even prior to restoration. The functional structure of plant and fungal communities varied in ways that were consistent with the representation of mycorrhizal types in the ecosystems prior to restoration. Compositional differences between managed and unmanaged open grasslands reflecting the implementation of grazing without further management interventions were clearer among fungal, and to an extent prokaryotic, communities than among plant communities. While previous studies have shown that during woody encroachment of alvar grassland, plant communities change first and fungal communities follow, our DNA-based results suggest that microbial communities reacted faster than plant communities during the restoration of grazing management in alvar grassland. We conclude that while the plant community responds faster to cessation of management, the fungal community responds faster to restoration of management. This may indicate hysteresis, where the eventual pathway back to the original state (grazed ecosystem) differs from the pathway taken towards the alternative state (abandoned semi-natural grassland ecosystem). [ABSTRACT FROM AUTHOR]