1. Plant traits can provide unique insights into plant performance at the community scale. Functional composition, defined by both functional diversity and community-weighted trait means (CWMs), can affect the stability of above‐ground net primary production (ANPP) in response to climate extremes. Further complexity arises, however, when functional composition itself responds to environmental change. The duration of climate extremes, such as drought, is expected to increase with rising global temperatures; thus, understanding the impacts of long-term drought on functional composition and the corresponding effect that has on ecosystem function could improve predictions of ecosystem sensitivity to climate change.
 2. We experimentally reduced growing season precipitation by 66% across six temperate grasslands for 4 years and measured changes in three indices of functional diversity (functional dispersion, richness and evenness), community-weighted trait means and phylogenetic diversity (PD). Specific leaf area (SLA), leaf nitrogen content (LNC) and (at most sites) leaf turgor loss point (πTLP) were measured for species cumulatively representing ~90% plant cover at each site.
 3. Long-term drought led to increased community functional dispersion in three sites, with negligible effects on the remaining sites. Species re-ordering following the mortality/senescence of dominant species was the main driver of increased functional dispersion. The response of functional diversity was not consistently matched by changes in phylogenetic diversity. Community-level drought strategies (assessed as CWMs) largely shifted from drought tolerance to drought avoidance and/or escape strategies, as evidenced by higher community-weighted πTLP, SLA and LNC. Lastly, ecosystem drought sensitivity (i.e. relative reduction in ANPP in drought plots) was positively correlated with community-weighted SLA and negatively correlated with functional diversity.
 4. Synthesis. Increased functional diversity following long-term drought may stabilize ecosystem functioning in response to future drought. However, shifts in community-scale drought strategies may increase ecosystem drought sensitivity, depending on the nature and timing of drought. Thus, our results highlight the importance of considering both functional diversity and abundance‐weighted traits means of plant communities as their collective effect may either stabilize or enhance ecosystem sensitivity to drought.