Microtopography plays a crucial role in regulating soil moisture in arid and semi-arid regions, thereby significantly influencing vegetation growth and distribution. The Loess Plateau, characterized by a deeply incised and fragmented landscape, necessitates an in-depth understanding of the microtopograph-soil moisture-vegetation relationship to guide effective vegetation restoration. This study, based on field investigations and laboratory analyses in the hilly-gully region of the Loess Plateau, employed one-way ANOVA, Duncan's multiple range test, and structural equation modeling to examine the effects of microtopography on vegetation community characteristics. The results revealed that microtopography significantly affects vegetation diversity and stability. Vegetation diversity and stability were higher on shady slopes than on sunny slopes, with diversity indices increasing by approximately 38% in certain regions. Additionally, downslope positions exhibited greater vegetation diversity than upslopes, with richness indices increasing by approximately 33% and the M. Godron index decreasing by 8.49, indicating enhanced stability. However, the effects of gullies varied significantly across different regions. Soil moisture content was higher on shaded slopes than on sunny slopes and greater at downslope positions than at upslopes, reaching up to 12.89% in gullies. Slope position exerted a direct and significant positive effect on soil moisture, which, in turn, indirectly influenced vegetation diversity and stability. This study reveals the dominant regulatory role of slope position in soil moisture, vegetation diversity, and stability, providing new perspectives and evidence for developing vegetation restoration strategies on the Loess Plateau and promoting the sustainable growth of regional vegetation.