Nitrogen (N) fixation by biological soil crusts (BSCs) is crucial for dryland ecosystems but is energy-intensive and relies on photosynthesis. Despite the potential impact of changing light availability due to shrub encroachment in drylands, direct field evidence linking light to BSC N fixation remains limited. We conducted a six-month field experiment on China's Loess Plateau to examine how shading (2% to 100% irradiance) affects N fixation in mossand cyanobacteria-dominated BSCs, hypothesizing that decreased light availability would significantly impact their N fixation capacity. Results showed that low light availability significantly suppressed N fixation, indicated by increased delta 15N values, and reduced chlorophyll a concentration. Concurrently, nitrate concentrations under low light were 3.0 and 2.2 times higher in moss and cyano BSCs, respectively. Bacterial diversity declined under shading, though diazotroph diversity remained unaffected. Structural equation modeling identified soil inorganic N and pH as key regulators of N fixation. Our research indicates that reduced light intensity may mediate photosynthesis and indirectly affect the N-fixing ability of BSCs. Additionally, the N-fixing capacity of these BSCs may be associated with increased nitrification rates and the accumulation of inorganic N. This study offers the first field-based evidence linking light reduction to the suppression of BSC N fixation through both photosynthetic impairment and alterations in the N cycle. These findings advance our understanding of how climate change-induced shifts in vascular plant ranges may drive fluctuations in BSC-driven biogeochemical processes, and impact dryland N stocks.