Headwater streams harbor diverse macroinvertebrate communities and are hotspots for leaf litter breakdown. The process of leaf litter breakdown mediated by macroinvertebrates forms an important link between terrestrial and aquatic ecosystems. Yet, how the vegetation type in the local riparian zone influences leaf-associated macroinvertebrate assemblages and leaf litter breakdown rates is still not resolved. We investigated how leaf-associated macroinvertebrate assemblages and leaf litter fragmentation rates differ between forested and non-forested sites using experimental leaf litter bags in sixteen sites paired across eight headwater streams in Switzerland. Our results show that sensitive taxa of the invertebrate orders Ephemeroptera, Plecoptera and Trichoptera (EPT) and the functional group of shredders were strongly associated with forested sites with overall higher values of abundance, diversity, and biomass of EPTs in forested compared to non-forested sites. However, the importance of riparian vegetation differed between study regions, especially for shredders. Fragmentation rates, which are primarily the result of macroinvertebrate shredding, were on average three times higher in forested compared to non-forested sites. Our results demonstrate that not only the composition of the aquatic fauna but also the functioning of an essential ecosystem process depend on the vegetation type in the local riparian zone.