Many plant species grow inside tussocks of some graminoids, but the underlying mechanisms remain unclear. We address whether some species occur and flower mainly inside tussocks so that species diversity and sexual reproduction are higher inside than outside tussocks, and whether relieving biological and physical stress is the mechanism associated with the facilitative process. In a heavily grazed grassland on the eastern Tibetan Plateau, where both physical (due to high altitude) and biological conditions (due to heavy grazing) are extremely harsh, we investigated vegetation in paired plots inside and outside 150 Kobresia tibetica tussocks and measured tussock basal area (=plot area). We also measured temperatures at soil surface, 5 and 10 cm depth and the number of animals (yaks, sheep and horses) grazing inside and outside tussocks. Sixty-seven percent of the species occurred and 42% flowered more frequently inside than outside tussocks, but none less frequently. Inside tussocks 78% species flowered, but outside tussocks only 31% did. Consequently, number of species, number of flowering species and number of inflorescences were all markedly larger inside than outside tussocks. Differences in number of species, number of flowering species and number of inflorescences inside and outside tussocks increased with increasing tussock basal area. Soil temperatures were lower inside than outside tussocks, but grazing intensity was much larger outside tussocks. Therefore, tussocks of K. tibetica facilitated the species inside them likely by grazing prevention, but not by increasing warmth. This study provides evidence that plant species colonizing tussocks of graminoids can be facilitated by the tussock species, and facilitation by grazing prevention may be one mechanism causing the coexistence of the species inside tussocks.