Current climate change models predict significant changes in rainfall patterns across Europe. To explore the effect of drought on soil CO2 efflux (FSoil) and on the contribution of litter to FSoil we used rainout shelters to simulate a summer drought (May to July 2007) in an intensively managed grassland in Switzerland, and to reduce annual precipitation by around 30% similar to the hot and dry year 2003 in Central Europe. We added 13C-depleted as well as unlabelled grass/clover litter to quantify the litter-derived CO2 efflux (FLitter). Soil CO2 efflux and the 13C/12C isotope ratio (δ13C) of the respired CO2 after litter addition were measured during the growing season 2007. Drought significantly decreased FSoil in our litter addition experiment by 52% and FLitter by 74% during the drought period itself (May to July), indicating that drought had a stronger effect on the CO2 release from litter than on the belowground-derived CO2 efflux (FBG, i.e. soil organic matter (SOM) and root respiration). Despite large bursts in respired CO2 induced by the rewetting after prolonged drought, drought also reduced FSoil and FLitter during the entire 13C measurement period (April to October) by 32% and 33%, respectively. Overall our findings highlight i) the sensitivity of temperate grassland soils to changes in precipitation, a factor that needs to be considered in regional models predicting the impact of climate change, and ii) the need to quantify the response of the different components of soil CO2 efflux to fully understand climate change impacts on ecosystem carbon balance.