Shrub encroachment on grasslands is an important ecological issue faced by arid and semi-arid regions worldwide, and its impact on the characteristics of grassland vegetation communities is complex and still a subject of considerable debate. This study selected four grassland sites with different degrees of shrub encroachment (CG, L-SE, M-SE, and H-SE) in the desert steppe of eastern Ningxia. Four shrub macro-plots (20 m?20 m) were established along uniform elevation and slope gradients. Within each macro-plot, three shrub micro-plots (5 m?5 m) were positioned diagonally, each containing three herbaceous subplots (1 m?1 m), totalling 9 subplots per shrub encroachment degree. Using vegetation community surveys (importance value, density, height, coverage, aboveground biomass, Shannon-Wiener diversity index, Simpson diversity index, Margalef richness index, and Pielou evenness index) and classical niche theory (niche breadth, niche overlap, and detrended correspondence analysis (DCA) ordination), combined with one-way analysis of variance (One-Way ANOVA) and the least significant difference (LSD) method, the study examined the effects of the naturally invading Caragana korshinskii on the vegetation community and niche characteristics in the desert steppe of eastern Ningxia. The results showed that: (1) During the process of shrub encroachment, the height and aboveground biomass of the herbaceous vegetation community significantly increased, while the density significantly decreased (P<0.05). The community tended to evolve towards a state with lower density but higher biomass. (2) The Shannon-Wiener diversity index, Simpson diversity index, and Margalef richness index exhibited the following trend: light shrub encroachment > heavy shrub encroachment > moderate shrub encroachment > no shrub encroachment. The Pielou evenness index significantly increased with the intensity of shrub encroachment (P<0.05). (3) Species such as Artemisia scoparia, Salsola collina, Corispermum mongolicum, Lespedeza davurica, and Grubovia dasyphylla exhibited higher importance values and wider ecological niches. As dominant species in the desert steppe, the fit between the importance values of the moderate shrub encroachment area and wider ecological niches was high, with a narrow confidence interval and strong correlation (R2=9359, P<0.01). This further indicates that moderate shrub encroachment is more suitable for the survival and reproduction of these dominant species. (4) Under the driving of shrub encroachment, except for a few dominant species with higher niche overlap, the overall niche overlap of the desert steppe vegetation community was generally low, with clear niche differentiation among species and minimal interspecific competition. In conclusion, the invasion of Caragana korshinskii into the desert steppe ecosystem promoted the growth of herbaceous plants beneath the shrubs and contributed to the stability of the grassland ecosystem. These findings provide critical insights for predicting and regulating the dynamics of shrub-encroached grassland vegetation communities, while offering a theoretical foundation for the sustainable utilization and management of shrub resources in desert steppe ecosystems.