In arid and semiarid ecosystems, water availability is a primary driver of ecosystem processes. Water impacts on belowground processes result in large part from the interactions of indigenous microorganisms with soil water. Understanding and predicting how changing patterns of precipitation in California can be expected to impact carbon and nitrogen cycling processes requires integrating the understanding of the biophysics of water in soil, the physiological response mechanisms of soil microbes, and the dynamics of soil water, including the roles of plant evapotranspiration in soil-water dynamics. As soil dries, water film thickness begins to limit the diffusional supply of substrates, and microbes utilize a range of mechanisms to respond to and survive desiccation. Very dry soils experiencing rainfall events produce trace-gas pulses, and the response patterns of indigenous microbes delineate the trace gas dynamics as well as the nutrient cycling responses to wet up.