Biological soil crusts are very sensitive to human-induced disturbances and are in a degraded state in many areas throughout their range. Given their importance in the functioning of arid and semiarid ecosystems, restoring these crusts may contribute to the recovery of ecosystem functionality in degraded areas. We conducted a factorial microcosm experiment to evaluate the effects of inoculation type (discrete fragments vs slurry), fertilization (control vs addition of composted sewage sludge), and watering frequency (two vs five times per week) on the cyanobacterial composition, nitrogen fixation, chlorophyll content, and net CO2 exchange rate of biological soil crusts inoculated on a semiarid degraded soil from SE Spain. Six months after the inoculation, the highest rates of nitrogen fixation and chlorophyll a content were found when the biological crusts were inoculated as slurry, composted sewage sludge was added, and the microcosms were watered five times per week. Net CO2 exchange rate increased when biological crusts were inoculated as slurry and the microcosms were watered five times per week. Denaturing gradient gel electrophoresis fingerprints and phylogenetic analyses indicated that most of the cyanobacterial species already present in the inoculated crust had the capability to spread and colonize the surface of the surrounding soil. These analyses showed that cyanobacterial communities were less diverse when the microcosms were watered five times per week, and that watering frequency (followed in importance by the addition of composted sewage sludge and inoculation type) was the treatment that most strongly influenced their composition. Our results suggest that the inoculation of biological soil crusts in the form of slurry combined with the addition of composted sewage sludge could be a suitable technique to accelerate the recovery of the composition and functioning of biological soil crusts in drylands.