Overgrazing often leads to grassland degradation, while nutrient supplementation is pivotal in ecosystem restoration by modulating nitrogen (N) and phosphorus (P) balances. Nonetheless, the extent to which N and P addition can mitigate the effects of grazing on degraded desert steppes and how its influence on nutrient limitations remains elusive. We conducted a two-year nutrient addition experiment under both enclosed and grazed conditions in a desert steppe in Inner Mongolia. Our results showed that grazing markedly reduced vegetation cover and aboveground biomass. However, P addition partially alleviated the productivity loss induced by grazing in the first year by enhancing soil P availability and plant P uptake, signifying a short-term improvement in recovery capacity. This beneficial effect, however, diminished with continued grazing. Conversely, N concentrations in plant shoots remained unaffected by nutrient addition but increased under grazing conditions, suggesting that herbivory-mediated biomass removal reduced excess soil N. Grazing also weakened the positive correlation between soil P availability and plant P uptake, likely due to P removal through consumption and selective feeding on nutrient-rich species. This process favored grazing-tolerant species with low nutrient demands, particularly dominant Poaceae species. Bacterial and fungal communities exhibited differential responses to N and P availability, and grazing intensified the competition for limited nutrients between plants and soil microorganisms. Our findings highlight that grazing can mitigate N accumulation while simultaneously exacerbating P limitation. Therefore, effective restoration of degraded desert steppes necessitates balancing P supplementation with appropriate grazing management to address N and P imbalances and sustain ecosystem productivity.