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Reindeer have been recorded to increase nutrient cycling rate and primary production in studies from fences almost 40 years old that separate areas with different grazing regimes in northern Fennoscandia. To further understand the mechanism behind the effects of herbivores on primary production, we measured the size of the major C and N pools, soil temperature, litter decomposition rate and N mineralization rate in lightly, moderately and heavily grazed areas along two of these fences. Plant N found in new biomass, indicative of plant N assimilation, was significantly higher in moderately and heavily grazed areas than in lightly grazed areas, which corresponded to a decreased amount of N in old plant parts. The amount of N found in plant litter or organic soil layer did not differ between the grazing treatments. Together with soil N concentrations and litter decomposition rates, soil temperatures were significantly higher in moderately and heavily grazed areas. We conclude that the changes in soil temperature are important for the litter decomposition rate and thus on the nutrient availability for plant uptake. However, the changes in plant community composition appear to be more important for the altered N pools and thus the enhanced primary production. The results provide some support for the keystone herbivore hypothesis, which states that intensive grazing can promote a transition from moss‐rich tundra heath to productive grasslands. Grazing altered N fluxes and pools, but the total N pools were similar in all grazing treatments. Our study thus indicates that grazing can increase the primary production through enhancing the soil nutrient cycling rate, even in a long term perspective on an ecological timescale.