In Europe, Natura 2000 sites should protect threatened target species and networks of habitats. The management of Natura 2000 grasslands is often financed by subsidized grazing as part of the Common Agricultural Policy (CAP). We studied the extent of CAP grazing for Natura 2000 management and how this affects a butterfly target species (the marsh fritillary) and floral resources. Based on extensive capture-mark-release studies from 2 years in >550 ha grid cells in a 225 km(2) landscape in Sweden that includes 15 Natura 2000 sites, we compared marsh fritillary occurrence probabilities and population densities in ungrazed and CAP-grazed habitats. Moreover, we analyzed how nectar resources and orchids were affected by CAP grazing based on plants records from 2347 sample plots. We estimated the proportion of butterfly habitats that were CAP-grazed within and outside Natura 2000 sites. In total, 10 453 and 4417 butterflies were marked in 2017 and 2019, respectively. The grid cell occurrence probability was 1.8 times higher and the population density was 2.3 times higher in ungrazed compared with CAP-grazed habitats in 2017, and the corresponding numbers for 2019 were 10 and 5.3 times higher, respectively. The number of flowering plants were on average 6.9 times higher and the density of orchids was 12.3 times higher in ungrazed habitats. Roughly, 30% (130 ha) of the marsh fritillary habitat was CAP grazed, and 97% of this grazing occurred within protected areas, of which 111 ha was situated within Natura 2000 area where the marsh fritillary is the target species. Alarmingly, we show that intense yearly CAP grazing, which is the dominant management strategy in all Natura 2000 sites, has devastating consequences for the target species and other aspects of biodiversity. Less intense management, which would benefit biodiversity, requires changes in the CAP, to allow more flexible payments for habitat management objectives and conservation of target species.