Arctic dwarf shrub ecosystems are predicted to be exposed to lower light intensity in a changing climate where mountain birch forests are expanding. We investigated how shading at 0%, 65%, and 97% affects photosynthesis, organic N uptake, C  and N allocation patterns in plants, and root fungal colonization in an ericoid dwarf shrub ecosystem. The ecosystem was labeled by injection of [2-¹³C,¹⁵N]glycine into the soil, and the uptake of ¹⁵N and ¹³C in roots and leaves 24 h later was analysed. Fungal colonization in hair roots was determined visually. Hair root ¹³C:¹⁵N ratios showed that dwarf shrub ecosystems are capable of taking up organic N as intact glycine both under high irradiance levels and under shaded conditions when photosynthesis is strongly reduced. The allocation of ¹⁵N to green leaves of Rubus chamaemorus L. increased with shading, whereas the allocation of ¹³C to leaves of both deciduous and evergreen plant species decreased. Species dominance was correlated with uptake of ¹³C, i.e., the most productive species also took up the highest amount of glycine. The ecosystem exhibited a tendency towards lower colonization by ericoid mycorrhizal fungi and dark septate endophytes in hair roots when shaded. Thus, shading has implications for processes central to both C and N cycling in subarctic ecosystems. This should be considered in projections of ecosystem responses to climate change and expanding mountain birch forests.