Abstract Grasslands across arid and semi‐arid regions are predicted to experience reductions in precipitation frequency. Besides, grassland degradation has become a serious problem in many of these areas. Despite increasing evidence suggesting compound effects of these synchronous alterations on biotic and abiotic ecosystem constituents, we still do not know how they will impact the coupling among ecosystem constituents and its consequences on ecosystem functioning. Here, we assessed the effects of decreased precipitation frequency and grassland degradation on ecosystem coupling, quantified based on the mean strength of pairwise correlations among multispecies communities and their physicochemical environment, individual functions and ecosystem multifunctionality, and reported their relationships within a mechanistic plant–nematode–micro‐organism–soil interactions framework. Decreased precipitation frequency led to poorly coupled ecosystems, and reduced aboveground plant biomass, soil water content, soil nutrient levels, soil biota abundance and multifunctionality. By contrast, belowground plant biomass and soil potential enzyme activities increased under decreased precipitation frequency treatment. Severe degradation resulted in decoupled ecosystems and suppressed most of individual functions and multifunctionality. Using structural equation modelling, we showed that coupling had a strong direct positive effect on multifunctionality (standardized total effect: 0.74), while multifunctionality was weakened by greater soil water variation (−0.54) and higher soil pH (−0.53). The great sensitivity of ecosystem coupling to altered precipitation regimes and degradation highlights the importance of considering interactions among biotic and abiotic components when predicting early ecological impacts under changing environments. Moreover, the positive relationship between ecosystem coupling and functioning suggests that restoration of degraded grasslands may be achieved by intensifying ecological interactions. Read the free Plain Language Summary for this article on the Journal blog.