Microbial immobilization may decrease the inorganic nutrient concentrations of the soil to the extent of affecting plant nutrient uptake and growth. We have hypothesized that graminoids with opportunistic nutrient-acquisition strategies are strongly influenced by nutrient limitation imposed by microbes, whereas growth forms such as dwarf shrubs are less affected by the mobilization–immobilization cycles in microbes. By adding NPK fertilizer, labile C (sugar) and fungicide (benomyl) over a 5 yr period in a fully factorial design, we aimed to manipulate the sink–source potential for nutrients in a non-acidic heath tundra soil. After 2 yr, N and P accumulated in the microbial biomass after fertilization with no change in microbial C, which suggests that nutrients did not limit microbial biomass growth. After 5 yr, microbial C was enhanced by 60% in plots with addition of labile C, which points to C-limitation of the microbial biomass. Microbial biomass N and P tended to increase following addition of labile C, by 10 and 25%, respectively. This caused decreased availability of NH4+ and P, showing close microbial control of nutrient availability. The most common graminoid, Festuca ovina, responded to fertilizer addition with a strong increase, and to labile C addition with a strong decrease in cover, providing the first direct field evidence that nutrient limitation imposed by immobilizing microbes can affect the growth of tundra plants. Also in support of our hypothesis, following addition of labile C the concentrations of N and K in leaves and that of N in roots of F. ovina decreased, whilst the demand of roots for P increased. In contrast, the most common dwarf shrub, Vaccinium uliginosum, was only slightly sensitive to changes in resource availability, showing no cover change after 4 yr addition of labile C and fertilizer, and little change in leaf nutrient concentrations. We suggest that the differential responses of the two growth forms are due to differences in storage and nutrient uptake pathways, with the dwarf shrub having large nutrient storage capacity and access to organic forms of N through its mycorrhizal association. While the fungicide had no effect on ericoid mycorrhizal colonization of roots or symbiotic function inferred from plant 15N natural abundance, it decreased microbial biomass C and N after 2 yr. Throughout the fifth season, the availability of soil NO3− and inorganic P was decreased with no change in microbial biomass C, N or P, suggesting a negative impact of benomyl on N and P mineralization.