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The physiognomy of dry savannas is described as a combination of discontinuous woody perennials and a continuous grassland matrix. Interactions between these two components are of vital importance for the persistence of a savanna landscape. Earlier savanna models have emphasized competitive interactions for water between the two components. Recent studies have argued that small-scale facilitating interactions between woody perennials and the herbaceous understorey are also important. This phenomenon has been given little theoretical consideration in the savanna literature, but it has been an important topic in agroforestry and arid-grassland ecology. This paper reviews some of the evidence for micro-site effects of trees and shrubs, and attempts to integrate their interactions with the surrounding open grassland. Woody perennials modify the microclimate by interception of solar radiation and rainfall. Their root systems extract nutrients horizontally and vertically, which are concentrated in the sub-canopy soil from litter decomposition and root turnover. Legumes are abundant in dry savannas, and may have symbiotic relationships with Rhizobium bacteria. This symbosis increases the availability of nitrogen in the soil. Isolated trees and shrubs initiate feedback mechanisms in their interactions with other organisms, and contribute to an uneven distribution of water and nutrients in dry savanna. This influences the species composition, and community diversity. Small-scale facilitating interaction between the woody and herbaceous components and competitive interaction on larger scales, are complementary processes which together explain a dynamic coexistence.