A key question in arid and semiarid environments is: How do variable rainfall and nitrogen availability affect nitrogen cycling? We studied the interaction of N availability, soil microsite, and rainfall event size and frequency on the effect of N₂O production in a semiarid grassland in central New Mexico. Interspace and grass canopy soil samples (top 5 cm) were collected and placed in serum vials. Vials with each soil type (interspace or grass) received nitrogen and rainfall treatments in a factorial design. Vials either received zero or 2 kg/m² nitrogen (ammonium nitrate). Each vial was watered from 1 to 6 times with different “rainfall” event sizes, such that each vial received a total of 180 mm of water. Gas samples were taken weekly and analyzed for N₂O on a gas chromatograph fitted with an electron capture detector. Our results show that all factors and interactions influenced N₂O production. N₂O flux was significantly higher in interspaces than under grass canopy. N₂O was highest under nitrogen addition and with one large rainfall event rather than numerous smaller events. These findings suggest that N₂O flux is highly episodic with a strong rainfall event size threshold, high spatial variability, and high dependence on nitrogen availability.