The link between biodiversity and grassland productivity remains a central puzzle for both theoretical and applied ecologists. Little is known about the response of functional diversity (FD, i.e. the extent of trait differences between organisms in a given community) to increased grassland productivity following fertilization. Species diversity is often used as a surrogate for FD but evidence shows that FD is often independent from species diversity.We conducted a three-year (2004–2006) experiment in a Tibetan alpine grassland to examine the effect of fertilization on FD and SD, and its relationship with productivity. We measured specific leaf area, plant height and seed size for 32 species in control, low- and high-fertilization treatments over three years, and quantified three components of FD: functional richness (FRic), functional evenness (FEve) and functional divergence using Rao's index (FDrao).While SD decreased rapidly, as expected, both FRic and FDrao increased significantly with fertilization. Neither species evenness nor FEve was affected by fertilization. Aboveground biomass was not significantly correlated with SD, but it was significantly positively correlated with both FRic and FDrao, with the strongest correlations found in 2006 for FRic and in 2005 for FDrao.The results showed that FD and SD have opposite responses to short-term fertilization. The increased FD suggests enhanced niche differentiation between species remaining after fertilization, which caused species loss. This study highlights the importance of examining FD in assessing fertilization-induced biodiversity loss and its impacts on ecosystem functioning in grasslands.