Grazing cover crops recouples crop and livestock production with the potential to enhance soil nutrient cycling processes. However, critical knowledge gaps on short-term N release dynamics and soil health outcomes upon adoption currently limit the application of integrated crop–livestock systems in organic vegetable production. The goal of this study was to characterize the benefits and potential tradeoffs of integrating sheep grazing of cover crops in organic vegetable production for soil ecosystem processes, N cycling, and underpinning shifts in microbial communities. We conducted a replicated experiment over 4 years of a vegetable rotation with three treatments: winter fallow, ungrazed cover crop, and grazed cover crop. We found that grazing cover crops did not significantly impact soil physical characteristics such as compaction. While organic carbon pools remained unchanged, grazing increased soil nitrogen in dissolved organic, inorganic, and microbial pools at key moments in crop production, exceeding levels observed under ungrazed cover crops. These increases were 22%, 36%, and 21%, respectively, at 0–15 cm; and 44%, 100%, and 22%, respectively, at 15–30 cm. Grazing did not lead to increased potentially leachable nitrate despite greater inorganic nitrogen pools during the cropping season. Cover crops, both grazed and ungrazed, lowered soil pH compared to fallow. Soil microbes responded rapidly to shifts in resources associated with grazing, with increased relative bacterial abundance, especially Gram (+) (+34%), and a decrease in the fungi:bacteria ratio (−64%) compared to no livestock integration. There was a trend toward less carbon in the particulate organic matter fraction (POM-C) after 4 years of winter grazing, highlighting the need for longer-term assessments. This research suggests that organic farmers can utilize grazing to strategically improve the timing of nitrogen release for their vegetable crops, with minimal tradeoffs in terms of physical properties, when grazing implementation follows best management practices.