Dispersal limitation and environmental conditions are crucial drivers of plant species distribution and establishment. As these factors operate at different spatial scales, we asked: Do the environmental factors known to determine community assembly at broad scales operate at fine scales (few meters)? How much do these factors account for community variation at fine scales? In which way do biotic and abiotic interactions drive changes in species composition? We surveyed the plant community within a dry grassland along a very steep gradient of soil characteristics like pH and nutrients. We used a spatially explicit sampling design, based on three replicated macroplots of 15x15, 12x12 and 12x12 meters in extent. Soil samples were taken to quantify several soil properties (carbon, nitrogen, plant available phosphorus, pH, water content and dehydrogenase activity as a proxy for overall microbial activity). We performed variance partitioning to assess the effect of these variables on plant composition and statistically controlled for spatial autocorrelation via eigenvector mapping. We also applied null model analysis to test for non-random patterns in species co-occurrence using randomization schemes that account for patterns expected under species interactions. At a fine spatial scale, environmental factors explained 18% of variation when controlling for spatial autocorrelation in the distribution of plant species, whereas purely spatial processes accounted for 14% variation. Null model analysis showed that species spatially segregated in a non-random way and these spatial patterns could be due to a combination of environmental filtering and biotic interactions. Our grassland study suggests that environmental factors found to be directly relevant in broad scale studies are present also at small scales, but are supplemented by spatial processes and more direct interactions like competition.