Habitat loss threatens insect diversity globally. However, complementary vegetation types in remaining habitat increases opportunities for species survival. We assess the extent to which indigenous forest patches moderate the impact of exotic commercial afforestation on grassland butterflies. Butterflies were sampled in grassland along uncorrelated gradients of landscape-scale indigenous forest and plantation cover, while controlling for variation in local vegetation composition. We separately assessed responses by butterfly groups differing in habitat preference, larval diet, and mobility. There was no effect of landscape- or local-scale variables on species richness, but there was a strong interactive effect of forest and plantation cover on butterfly assemblage structure. The effect varied according to species traits. When forest cover was high, assemblages did not differ at different levels of plantation cover. However, plantation cover significantly influenced assemblage structure when forest cover was low. Grassland with limited forest cover in the protected area supported unique assemblages with high frequency of less mobile, specialized species with herbaceous larval host plants, whereas grassland with low forest cover near plantations had a prevalence of mobile, generalist species. A positive association between forest cover and butterflies with woody larval host plants suggests that indigenous forest patches improved the suitability of fragmented grassland for a subset of butterflies, emphasising the value of natural heterogeneity in transformed areas. However, certain butterfly traits associated with large, open grassland were under-represented in grassland between plantations, underscoring the importance of open areas in the broader landscape to conserve the full diversity of species.