Treelines have drawn persistent research interest as they can respond markedly to climate. However, the mechanisms that determine tree seedling recruitment and the response of the forest-tundra ecotone to environmental changes remain poorly understood. We hypothesise that treeline tree seedling performance depends on the interplay between climatic and soil nutritional changes and facilitative and competitive interactions between trees and shrubs. We conducted a seedling transplantation experiment with Betula pubescens at a subarctic treeline, in northern Sweden, which followed a full factorial design with four treatment factors relating to environmental regimes of stress and resource availability: site (forest vs treeline); temperature (+/- passive warming); shrub presence (+/-Vaccinium myrtillus removal); and nutrient availability (+/- NPK addition). During three growing seasons we assessed the establishment and performance of Betula. The experimental manipulations caused highly significant effects on seedling performance. Although Vaccinium enhanced seedling survival and reduced the effects of excessive solar radiation and insect herbivory, the seedlings growing with the shrub had a poorer performance by the end of the experimental period. Also, seedlings in the forest had a poorer performance than those at the treeline. Betula seedlings showed a very pronounced and positive response to passive warming and to nutrient addition, but such effects were more evident at the treeline site and often interacted with the presence of Vaccinium. This experiment shows that shrub-tree interactions are important drivers of subarctic treeline dynamics and that they vary with time and space. Facilitation, competition, herbivory and environmental changes at the tree seedling stage act as important filters in structuring the forest-tundra ecotone. We demonstrate that changes in this ecotone cannot be simply predicted from changing temperature patterns alone, and that complex interactions need to be considered, not only between shrubs and trees, but also with herbivores and between warming and soil nutrient availability. © 2012 The Authors.