AbstractForest degradation is increasingly recognized as a major threat to global biodiversity and the multiple ecosystem services forests provide. This study examined the impacts of forest degradation on soil quality and function in a seasonally dry tropical forest (SDTF) of Ecuador. Previous studies of SDTFs have focused on the impacts of land‐use conversion on soils, while this study assessed the less visible but pervasive effects of degradation. We compared soil physical–chemical properties, enzymatic activity, particulate organic carbon (POC) and mineral‐associated organic carbon (MAOC) along a gradient of SDTF degradation in both the dry and rainy season. Our findings showed a consistent and steady reduction in soil quality (total C and N) and function (dehydrogenase and β‐glucosidase activity) that paralleled the loss of vegetative structure and diversity along the degradation gradient. Soil physical–chemical properties were less variable and enzymatic activity was generally higher in the dry season compared to the rainy season. We also showed for the first time a significant and uniform decrease in POC and MAOC with degradation in SDTF. The relative proportion of these two components was constant along the gradient except in the most degraded state (arid land), where POC was higher in proportion to MAOC, suggesting that extreme forest degradation may cause this ecosystem to cross a functional tipping point. These findings address an important knowledge gap for SDTFs by showing a consistent loss of soil quality and functionality with degradation, and suggest that extreme degradation can result in an alternate state with compromised resilience.