Overgrazing is a major cause of grassland degradation in semi-arid regions. To evaluate how soil water and heat fluxes respond to grazing, investigations on soil, plant and meteorological parameters were conducted at four sites with different grazing intensities through three growing periods (2004-2006) in a steppe ecosystem of Inner Mongolia. The grazing intensities were (1) ungrazed since 1979, (2) ungrazed since 1999, (3) moderately grazed, and (4) heavily grazed. In comparison to other treatments, heavy grazing had decreased total pore and macropores volumes. The impacts of these grazing-induced changes of soil pore structure on water and heat fluxes were simulated by the processed-based hydraulic model HYDRUS-1D. To account for the site-specific boundary condition, we partitioned evapotranspiration as a function of dynamic cover area index of green and dead plant materials, used the root growth model related with root length density, and estimated interception using the SHAW model. Furthermore, the uncertainty of soil hydraulic parameters on model results was evaluated using three simulation approaches: (i) laboratory-derived hydraulic properties (LDP), (ii) neural network (NN) analysis, and (iii) inverse optimization (Inverse). On the basis of previous calibrations, HYDRUS-1D was validated with a good agreement between modeled and measured soil moisture and temperature, which provided a basis to evaluate the grazing effects on water and energy balance. Of the three approaches used, the Inverse expressed the best simulation, and the LDP was better than the NN due to more precise reflection of soil structural functions. Model result showed that, due to the changed soil structure and soil surface coverage, grazing increased soil heat fluxes. There was no significant difference on water budget components between the two ungrazed sites and moderate grazing, while heavy grazing significantly decreased interception from 17 to 7 mm and transpiration from 121 to 74 mm, and increased evaporation from 88 to 128 mm. We conclude that intensive grazing in Inner Mongolia grassland deteriorated soil functions and reduced plant available water, and consequently reduced grassland productivity and enhanced the risks for wind and water erosion. (C) 2010 Elsevier B.V. All rights reserved.