Arctic shrub expansion alters carbon budgets, albedo, and warming rates in high latitudes but remains challenging to predict due to unclear underlying controls. Observational studies and models typically use relationships between observed shrub presence and current environmental suitability (bioclimate and topography) to predict shrub expansion, while omitting shrub demographic processes and non-stationary response to changing climate. Here, we use high-resolution satellite imagery across Alaska and western Canada to show that observed shrub expansion has not been controlled by environmental suitability during 1984–2014, but can only be explained by considering seed dispersal and fire. These findings provide the impetus for better observations of recruitment and for incorporating currently underrepresented processes of seed dispersal and fire in land models to project shrub expansion and climate feedbacks. Integrating these dynamic processes with projected fire extent and climate, we estimate shrubs will expand into 25% of the non-shrub tundra by 2100, in contrast to 39% predicted based on increasing environmental suitability alone. Thus, using environmental suitability alone likely overestimates and misrepresents shrub expansion pattern and its associated carbon sink.