||Grasslands play important roles in agricultural production and provide a range of ecosystem services. Modelling can be a valuable adjunct to experimental research in order to improve the knowledge and assess the impact of management practices in grassland systems. In this study, the PaSim model was assessed for its ability to simulate plant biomass production, soil temperature, water content, and total and heterotrophic soil respiration in Mediterranean grasslands. The study site was the extensively managed sheep grazing system at the Berchidda‐Monti Observatory (Sardinia, Italy), from which two data sets were derived for model calibration and validation respectively. A new model parameterization was derived for Mediterranean conditions from a set of eco‐physiological parameters. With the exception of heterotrophic respiration (Rh), for which modelling efficiency (EF) values were negative, the model outputs were in agreement with observations (e.g., EF ranging from ~0.2 for total soil respiration to ~0.7 for soil temperature). These results support the effectiveness of PaSim to simulate C cycle components in Mediterranean grasslands. The study also highlights the need of further model development to provide better representation of the seasonal dynamics of Mediterranean annual species‐rich grasslands and associated peculiar Rh features, for which the modelling is only implicitly being undertaken by the current PaSim release.