Current climate change models predict significant changes in rainfall patterns across Europe. To explore the effect of drought on soil CO₂ efflux (F_Soil) and on the contribution of litter to F_Soil we used rain shelters to simulate a summer drought (May to July 2007) in an intensively managed grassland in Switzerland by reducing annual precipitation by around 30% similar to the hot and dry year 2003 in Central Europe. We added ¹³C-depleted as well as unlabelled grass/clover litter to quantify the litter-derived CO₂ efflux (F_Litter). Soil CO₂ efflux and the ¹³C/¹²C isotope ratio (δ¹³C) of the respired CO₂ after litter addition were measured during the growing season 2007. Drought significantly decreased F_Soil in our litter addition experiment by 59% and F_Litter by 81% during the drought period itself (May to July), indicating that drought had a stronger effect on the CO₂ release from litter than on the belowground-derived CO₂ efflux (F_BG, i.e. soil organic matter (SOM) and root respiration). Despite large bursts in respired CO₂ induced by the rewetting after prolonged drought, drought also reduced F_Soil and F_Litter during the entire ¹³C measurement period (April to October) by 26% and 37%, respectively. Overall, our findings show that drought decreased F_Soil and altered its seasonality and its sources. Thus, the C balance of temperate grassland soils respond sensitively to changes in precipitation, a factor that needs to be considered in regional models predicting the impact of climate change on ecosystems C balance.