The impact of interannual variability in temperature and precipitation on global terrestrial ecosystems is investigated using a dynamic global vegetation model driven by gridded climate observations for the 20th century. Contrasting simulations are driven either by repeated mean climatology or raw climate data with interannual variability included. Interannual climate variability favors the expansion of grass cover at the expense of tree cover, due to differences in growth rates, fire impacts, and interception. Among woody vegetation, climate variability supports expanded deciduous forest growth and diminished evergreen forest growth, due to difference in bioclimatic limits, leaf longevity, interception rates, and rooting depth. These results offer insight into future ecosystem distributions since climate models generally predict an increase in climate variability and extremes.