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1. Arctic vegetation tends to be spatially heterogeneous and can have large areas of mixed ‘transition zone’ vegetation between stands dominated by a single or few species. If plant photosynthesis and growth within these transition zones differs significantly from main vegetation stands, and if transition zones are not considered when extrapolating stand‐level findings to larger scales in space, then transition zones will provide considerable error to landscape‐level estimates of gross primary productivity (GPP). 2. In a heterogeneous sub‐Arctic tundra landscape, we undertook a detailed assessment of plant and ecosystem photosynthesis and plant growth in stands dominated by the short‐stature evergreen dwarf shrub Empetrum hermaphroditum, the deciduous dwarf shrub Betula nana, the taller deciduous shrub Salix glauca and also the transition zones between them. 3. Our findings show that plants in transition zones towards taller and more productive vegetation types frequently showed reduced shoot growth, equal or reduced light‐saturated photosynthesis (Pmax) and other typical shade responses (e.g. increased leaf chlorophyll and leaf area per mass) when compared with conspecific plants in main stands where the species is dominant. Critically, whole‐ecosystem GPP per leaf area was 20–40% lower in transition zones than in main vegetation stands as a consequence. A modelling analysis suggests that the under‐productivity of some transition zones results from the lack of a clear ‘winner’ in the competition for light, such that active leaves of some species are shaded by relatively inactive leaves of others. 4. These findings highlight how biotic interactions can considerably influence plant performance to the extent that productivity of mixed vegetation (transition zones) cannot be predicted from their main stands either side. How the consequences of mixing vegetation relate to mechanisms in biodiversity‐function theory is discussed. 5. Synthesis: Our work shows that the productivity of transition zones of arctic vegetation is considerably lower than may be estimated from the main stands on either side. This reduced GPP in transition zones, therefore, must be considered when modelling carbon fluxes at the landscape scale and suggests that the impact of transition zones on ecosystem function needs further investigation in heterogeneous landscapes, where they make up a significant proportion of the land cover.
