At the ecosystem level, all fungal activity in arid and semiarid systems is water regulated. However, as the observation scale is changed to allow for finer resolution of moisture effects, one finds that fungal community development in deserts may be influenced by either the temporal patterning of moisture pulses, or biotic factors that extend the benefits of moisture windows. When selected biocides were applied to the root region of a desert bunchgrass, Erioneuron pulchellum, to reduce microarthropod and nematode densities, fungal species numbers associated with the root surface were not altered. The temporal pattern in species numbers apparently reflect large scale seasonal responses of the fungi, microfauna, and plants to yearly differences in the occurrences of moisture windows. For wood on the soil surface, moisture windows of short duration coupled with high temperatures restrict fungal species composition in this habitat resulting in a lack of turnover in the dominant fungal species on surface wood. However, when wood was placed in the more amenable environment of a woodrat midden, patterns of fungal community development differed significantly from that observed for wood on the soil surface. These studies indicate that our understanding of the roles of fungi in the functioning of desert ecosystems is biased because the scale at which we usually make observations is too large to account for abiotic and biotic influences on fungal activity and community development. Moreover, we have to realize that the occurrence of favorable habitats for fungi in arid systems varies considerably in space and time. One consequence of the high spatial and temporal heterogeneity in favorable habitats is that functional diversity among fungi may be greater than would be predicted based solely on abiotic considerations. Key words: deserts, environmental heterogeneity, functional diversity, scale, wood.