We evaluated the effects of afforestation on the composition and structure of southern Brazilian subtropical grasslands directly beneath tree plantations, in pastures, and in permanent protection areas near watercourses. Cover of plants was registered in 120 plots of 1 m2 in grasslands located at two distances from small watercourses in pasture and eucalypt plantation areas within a livestock ranching landscape. Livestock density is reduced in plantation areas. Species composition beneath tree plantations was significantly different from both pasture and nearby permanent protection areas. Permanent protection areas near plantations were also compositionally different from pastures. Eucalypt plantation was the environment type where ruderals were most abundant. Growth form cover distribution in pasture areas showed a consistent pattern, with graminous herbs being the most common growth form followed by prostrate herbs, prostrate subshrubs, and standing subshrubs. In plantation areas, the dominance of the graminoid herb growth form increased markedly, as well as standing herbs. These increases occurred mainly at the expense of prostrate herbs and subshrubs, which were significantly reduced. Plot-level species density was significantly affected by distance from watercourse and, more importantly, was significantly influenced by the interaction between management regime and distance to watercourse. It was reduced in eucalypt plantations relative to permanent protected areas. Current management of eucalypt plantations in southern Brazil produce unsuitable conditions for grassland species to thrive within plantations. Livestock densities <1.0 animal unit ha−1 in eucalypt plantations undermines the ability of surrounding permanent protection areas to act as ecological networks for biodiversity conservation.