The climate-driven encroachment of shrubs into the Arctic is accompanied by shifts in soil fungal communities that could contribute to a net release of carbon from tundra soils. At the same time, arctic grazers are known to prevent the establishment of deciduous shrubs and, under certain conditions, promote the dominance of evergreen shrubs. As these different vegetation types associate with contrasting fungal communities, the belowground consequences of climate change could vary among grazing regimes. Yet, at present, the impact of grazing on soil fungal communities and their links to soil carbon have remained speculative. Here we tested how soil fungal community composition, diversity and function depend on tree vicinity and long-term reindeer grazing regime and assessed how the fungal communities relate to organic soil carbon stocks in an alpine treeline ecotone in Northern Scandinavia. We determined soil carbon stocks and characterized soil fungal communities directly underneath and >3 m away from mountain birches (Betula pubescens ssp. czerepanovii) in two adjacent 55-year-old grazing regimes with or without summer grazing by reindeer (Rangifer tarandus). We show that the area exposed to year-round grazing dominated by evergreen dwarf shrubs had higher soil C:N ratio, higher fungal abundance and lower fungal diversity compared with the area with only winter grazing and higher abundance of mountain birch. Although soil carbon stocks did not differ between the grazing regimes, stocks were positively associated with root-associated ascomycetes, typical to the year-round grazing regime, and negatively associated with free-living saprotrophs, typical to the winter grazing regime. These findings suggest that when grazers promote dominance of evergreen dwarf shrubs, they induce shifts in soil fungal communities that increase soil carbon sequestration in the long term. Thus, to predict climate-driven changes in soil carbon, grazer-induced shifts in vegetation and soil fungal communities need to be accounted for.