Biological soil crusts (BSCs) are key biotic components of dryland ecosystems worldwide that control many functional processes, including carbon and nitrogen cycling, soil stabilization and infiltration. Regardless of their ecological importance and prevalence in drylands, very few studies have explicitly evaluated how climate change will affect the structure and composition of BSCs, and the functioning of their constituents. Using a manipulative experiment conducted over 3 years in a semi-arid site from central Spain, we evaluated how the composition, structure and performance of lichen-dominated BSCs respond to a 2.4°C increase in temperature, and to an approximately 30 per cent reduction of total annual rainfall. In areas with well-developed BSCs, warming promoted a significant decrease in the richness and diversity of the whole BSC community. This was accompanied by important compositional changes, as the cover of lichens suffered a substantial decrease with warming (from 70 to 40% on average), while that of mosses increased slightly (from 0.3 to 7% on average). The physiological performance of the BSC community, evaluated using chlorophyll fluorescence, increased with warming during the first year of the experiment, but did not respond to rainfall reduction. Our results indicate that ongoing climate change will strongly affect the diversity and composition of BSC communities, as well as their recovery after disturbances. The expected changes in richness and composition under warming could reduce or even reverse the positive effects of BSCs on important soil processes. Thus, these changes are likely to promote an overall reduction in ecosystem processes that sustain and control nutrient cycling, soil stabilization and water dynamics.