Shrub encroachment in arid and semiarid rangelands, a worldwide phenomenon, results in a heterogeneous landscape characterized by a mosaic of nutrient-depleted barren soil bordered by nutrient-enriched shrubby areas known as “fertile islands.” Even though shrub encroachment is considered as a major contributor to rangeland degradation, little is known about mechanisms favoring the reversibility of the early stages of this process. Here we synthesize the interactions between fires and soil erosion processes, and the implications of these interactions for management of rangelands. The burning of shrub vegetation develops relatively high levels of soil hydrophobicity. This fire-induced water repellency was shown to enhance the soil erodibility in and around burned shrub patches. The fire-induced enhancement of local-scale soil erosion results from changes in the interparticle bonding forces between the soil grains, thus altering the way moisture is retained in the soil. It has been shown—with a number of wind-tunnel studies, field-scale manipulative experiments, microtopographic measurements, and isotopic tracer studies—how the fire-erosion interactions affect the dynamics of fertility islands. Further we propose a new conceptual model of resource “island” dynamics that explains some of the findings previously reported in the literature on the interactions between aeolian processes and arid-land vegetation. In particular, we highlight the ability of fires to enhance the erodibility of nutrient-rich soils accumulated under the shrubs favoring the redistribution of soil resources, thereby contributing to the reversibility of the early stages of shrub encroachment.