Intermediate wheatgrass (Thinopyrum intermedium; IWG) is a perennial cereal crop undergoing development for grain production; however, grain yield declines of >75% are often observed after year 2 of the perennial stand and may be linked to soil nutrient depletion. Intercropping IWG with a perennial legume such as alfalfa (Medicago sativa) could benefit nutrient cycling while increasing agroecological diversity. Intermediate wheatgrass was established at five environmentally diverse sites in Minnesota, USA in (1) bi-culture with alfalfa, (2) non-fertilized monoculture and (3) monoculture fertilized annually in the spring with 80 kg N/ha. At northern sites where alfalfa growth was favoured, IWG grain yields were reduced in year 2 by growing IWG in bi-culture with alfalfa, relative to the monoculture systems. Across all sites IWG grain yield decreased by 90% in the non-fertilized monoculture, 80% in the fertilized monoculture and 65% in the bi-culture from year 2 to 4 and plant macronutrient concentrations decreased by 25–70%. In year 4, IWG grain yield was similar or greater in the bi-culture than the fertilized monoculture at three of the five sites and alfalfa biomass was correlated positively with grain yield, harvest index and nutrient uptake in the year 4 bi-culture. Chemical-nitrogen fertilization increased grain yields in year 2 but did not mitigate the decline in yields as stands aged. Intermediate wheatgrass in the bi-culture had similar yields and nutrient uptake and lower yield declines than the chemically fertilized stand at sites where alfalfa growth was maintained throughout the life of the stand.