Woody shrub encroachment has been linked to environmental changes associated with pastoralism, such as fire regime shifts and overgrazing, throughout Earth's rangelands. Extinction of native fauna that are consumers of shrubs has also accompanied pastoralism in many areas; however fauna declines have rarely been considered as a driver of encroachment. Here we investigate the interacting impacts that wildfire and functional extinction of native granivorous rodents and a small introduced herbivore, the European rabbit (Oryctolagus cuniculus), have on shrub seedling density in the Strzelecki Desert, Australia. Using data from field surveys conducted following wildfires in 2012, we show that shrub seedling densities were higher at burned than unburned sites in areas where rodents and rabbits were rare. However, at sites where rodents and rabbits were common, seedling densities were higher at unburned than burned sites and rodent activity was greater on burned sites during an optimal recruitment period. Our results provide support for the hypothesis that post-fire shrub recruitment is facilitated by the extinction of small mammals which consume shrubs and their seeds. Our study suggests that “rewilding” of small mammal assemblages may provide a mechanism to curb shrub encroachment.