Arid regions in the U.S. have strongly experienced negative impacts of invasive grasses.  By constituting “Islands of fertility,” native shrubs may enhance the performance of annuals.  We investigated the interaction between the widely distributed native shrub Ambrosia dumosa and the exotic annual grass Schismus barbatus in the Colorado Desert between 2004 and 2006. Using split-plot experiments, we evaluated germination and growth of Schismus and Ambrosia seedlings at different distances from 66 established Ambrosia adults. Three seed mixtures, 1) Schismus alone, 2) Ambrosia alone, and 3) a mixture of both species) were planted in PVC pipes placed flush with soil level located at four different distances (below, canopy edge, 1 m and 2 m from plant center) from two categories of Ambrosia adults, large or small. We controlled for seedbank effects by including a treatments using local soils, and a replicate using sterile sand.  Although Ambrosia did not germinate during the experiment, Schismus strongly responded to both soil treatment and distance from Ambrosia.  Germination was significantly higher with increasing distance from Ambrosia and was significantly lower in natural versus sterile soils. Individual Schismus were bigger when grown close to Ambrosia or in natural soils, and there was a strong correlation between biomass and number of seeds (p<0.01).  Therefore Schismus growing near Ambrosia may contribute more to population growth.   However, during the dry season of 2005-2006, individual Schismus plants grew larger far from Ambrosia. Year-to-year variation in environmental conditions controls Schismus performance in response to microhabitats defined by Islands of Fertility.