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Increasing soil carbon stocks in agricultural grasslands has a strong potential to mitigate climate change. However, large uncertainties around the drivers of soil respiration hinder our ability to identify management practices that enhance soil carbon sequestration. In a context where more intense and prolonged droughts are predicted in many regions, it is critical to understand how different management practices will temper drought-induced carbon losses through soil respiration. In this study, we compared the impact of changing soil volumetric water content during a drought on soil respiration in permanent grasslands managed either as grazed by dairy cows or as a mowing regime. Across treatments, root biomass explained 43% of the variability in soil respiration (p < 0.0001). Moreover, analysis of the isotopic composition of CO2 emitted from the soil, roots, and root-free soil suggested that the autotrophic component largely dominated soil respiration. Soil respiration was positively correlated with soil water content (p = 0.03) only for the grazed treatment. Our results suggest that the effect of soil water content on soil respiration was attributable mainly to an effect on root and rhizosphere activity in the grazed treatment. We conclude that farm management practices can alter the relationship between soil respiration and soil water content.