Australia's arid shrublands have been impacted by a variety of threatening processes since European settlement, and changes to ecosystem structure and function have been observed at multiple levels. The lack of recruitment and regeneration of the perennial shrub and tree layer in these communities has implications for many shrubland birds, including species of conservation concern such as the Chestnut-rumped Thornbill (Acanthiza uropygialis: Acanthizidae). We documented foraging behaviour and habitat selection of the Chestnut-rumped Thornbill at the Arid Recovery Reserve in South Australia and surveyed vegetation characteristics within the Reserve and in an adjacent pastoral property. We found that Chestnut-rumped Thornbills preferentially use certain plant species: Callitris glaucophylla, Acacia aneura, Acacia ligulata and Acacia tetragonophylla, and that these species were significantly less abundant at our study sites outside the Reserve than inside. Major differences in the structure and composition of the vegetation inside and outside the Reserve suggest that changes in habitat structure and composition occurring in the broader landscape (outside the fenced area) decrease the suitability of arid shrubland habitat for the Chestnut-rumped Thornbill and may contribute to their absence in unprotected areas. Our study indicates that deterioration of the perennial shrub layer could have significant consequences for the persistence of the Chestnut-rumped Thornbill in arid rangelands. Our findings highlight the importance of rangeland management and restoration of Australia's arid shrublands in preventing declines of the Chestnut-rumped Thornbill and other insectivorous birds.