In arid ecosystems, current-year precipitation often explains only a small proportion of annual aboveground net primary production (ANPP). We hypothesized that lags in the response of ecosystems to changes in water availability explain this low explanatory power, and that lags result from legacies from transitions from dry to wet years or the reverse. We explored five hypotheses regarding the magnitude of legacies, two possible mechanisms, and the differential effect of previous dry or wet years on the legacy magnitude. We used a three-year manipulative experiment with five levels of rainfall in the first two years (-80% and -50% reduced annual precipitation (PPT), ambient, +50% and +80% increased PPT), and reversed treatments in year 3. Legacies of previous two years, which were dry or wet, accounted for a large fraction (20%) of interannual variability in production on year 3. Legacies in ANPP were similar in absolute value for both types of precipitation transitions, and their magnitude was a function of the difference between previous and current-year precipitation. Tiller density accounted for 40% of legacy variability, while nitrogen and carry-over water availability showed no effect. Understanding responses to changes in interannual precipitation will assist in assessing ecosystem responses to climate change-induced increases in precipitation variability.