Questions Do nurse plant interactions significantly influence understorey vegetation diversity in a large, semi-arid, shrub-dominated wetland? How do the modes and net effects of nurse plant interactions vary spatially along a flood frequency gradient, and temporally in response to drying? Location Narran Lakes Ramsar site, New South Wales, Australia. Methods Microhabitat characteristics, understorey vegetation and germinable soil seed banks were investigated in shrub and open habitats across a flood frequency gradient in a large, semi-arid wetland dominated by open shrubland under productive conditions following floodwater recession and again following 6 mo of drought. Split-plot ANOVA and multivariate analyses were used to determine the effects of shrubs on microhabitat character, understorey vegetation cover, species diversity, richness and composition and germinable soil seed banks. Results Microhabitat characteristics, including canopy cover, litter cover and soil character, all differed between shrub and open habitats, especially in the most frequently flooded sites. Under productive conditions following flooding, lignum shrubs suppressed understorey vegetation cover but increased species richness at the site scale across the flood frequency gradient and, in the most frequently flooded sites, supported higher species density at a microhabitat scale. Under dry conditions, lignum shrubs had a positive effect on understorey vegetation cover, species richness and species density across the flood frequency gradient, but particularly in frequently flooded sites. A significant difference in soil seed bank composition between shrub and open habitats was only observed in frequently flooded sites. Conclusions Nurse plant interactions appear to play an important role in determining understorey vegetation diversity in the lignum shrubland of the Narran Lakes wetland system. The modes and net effects of these nurse plant interactions vary in space and time in relation to flood history and drying. Positive interactions, probably involving microhabitat amelioration, appear to be particularly important to plant diversity and abundance under dry conditions. Under more favourable wetter conditions, lignum shrubs also contribute to understorey vegetation diversity by facilitating the establishment of different species than those dominating open habitats. Our findings have implications for the management of perennial shrubs and hydrological regimes in such wetlands. In a hydrologically variable wetland in semi-arid Australia nurse plant interactions contributed to the diversity of understorey plant communities but varied in their mode and net effects. Under dry conditions, shrubs had a predominantly positive effect on understorey plants. In wetter conditions shrubs exerted negative influences on the dominant understorey species but appeared to facilitate establishment of rarer species.