The naturally occurring fungal seed pathogen, Pyrenophora semeniperda, reduces the seed bank of Bromus tectorum but the role of plant litter in this seed–pathogen interaction is unexplored. To investigate the direct and indirect effects of litter on this interaction, we first collected field seed-bank samples from low and high Bromus litter patches. From these data, we explored the relationship between litter depth, seed-bank density and seed mortality from P. semeniperda. Second, we manipulated the fungal stages (conidial spores and mycelium) in/on the litter through sterilization techniques, to measure the direct effect of litter on seed death. Third, for indirect effects, we manipulated litter levels and held seed density and inoculum constant to determine whether Bromus litter could modify the seed zone microsites to favour disease. We found that seed-bank samples from high-litter patches contained higher field-killed seed densities compared with low-litter patches, although the percent difference of disease between litter patch types varied among sites and years (e.g. 80% to 46%). In testing the direct effects of litter on the seed–pathogen interaction, we found that litter can act as a direct inoculum source for the pathogen in the early summer but decreases in disease transmission by the following spring when the litter naturally is in contact with seeds. Investigating indirect effects, we found four times as many pathogen-killed seeds in high-litter treatments as compared with low-litter treatments when inoculum loads and seed densities were held constant. In addition, we found that litter influences the seed–pathogen interaction through density-dependent disease transmission. Our findings demonstrate the ecological importance of litter in semi-arid environments as it influences disease levels of a seed pathogen by direct and indirect means.