Woody encroachment can lead to a complete switch from open habitats to dense thickets, and has the potential to greatly alter the biodiversity and ecological functioning of grassy ecosystems across the globe. Plant litter decomposition is a critical ecosystem process fundamental to nutrient cycling and global carbon dynamics, yet little is known about how woody encroachment might alter this process. We compared grass decay rates of heavily encroached areas with adjacent nonencroached open areas in a semi‐arid South African savanna using litterbags that allowed or excluded invertebrates. We also assessed the effect of woody encroachment on the activity of termites— dominant decomposer organisms in savanna systems. We found a significant reduction in decomposition rates within encroached areas, with litter taking twice as long to decay compared with open savanna areas. Moreover, invertebrates were more influential on grass decomposition in open areas and termite activity was substantially lower in encroached areas, particularly during the dry season when activity levels were reduced to almost zero. Our results suggest that woody encroachment created an unfavourable environment for invertebrates, and termites in particular, leading to decreased decomposition rates in these areas. We provide the first quantification of woody encroachment altering the functioning of African savanna ecosystems through the slowing of aboveground plant decomposition. Woody encroachment is intensifying across the globe, and our results suggest that substantial changes to the carbon balance and biodiversity of grassy biomes could occur.