This review summarises recent information on beneficial roles that soil nematodes play in the cycling of carbon and other plant nutrients in grassland ecosystems. In particular, we focus on the role of the two dominant functional groups of nematodes, namely the microbial- and root-feeders, and how their activities may enhance soil ecosystem-level processes of nutrient cycling and, ultimately, plant productivity in managed and unmanaged grassland ecosystems. We report recent experiments which show that low amounts of root herbivory by nematodes can increase the allocation of photoassimilate carbon to roots, leading to increased root exudation and microbial activity in the rhizosphere. The effects of these interactions on soil nutrient cycling and plant productivity are discussed. Evidence is presented to show that the feeding activities of microbial-feeding nematodes can enhance nutrient mineralization and plant nutrient uptake in grasslands, but that these responses are highly species-specific and appear to be strongly regulated by higher trophic groups of fauna (top-down regulation). We recommend that future studies of the roles of nematodes in grasslands ecosystems should consider these more complex trophic interactions and also the effects of species diversity of nematodes on soil ecosystem-level processes.