There is growing consensus that the relative constraints of seed limitation and establishment limitation in recruitment strongly influence abundance patterns in plant communities. Although these constraints have direct relevance to coexistence, most investigations utilize a seed addition approach that offers limited insight into these dynamics. Here we report results of an assembly experiment with annual plant species of California grasslands to examine how propagule pool characteristics (dominant species abundance, functional diversity) influence establishment and seed limitation (density independence and density dependence across a gradient of seed supply) for each species, and how these constraints affect community diversity. Species were predominantly co-limited by seed and establishment constraints, exhibiting saturating recruitment functions with increased seed supply. Consistent with competition-colonization trade-off predictions, recruitment constraints often depended on the degree of seed limitation of the competitive dominant, Brassica nigra; diversity was greatest in communities where Brassica was seed limited. Functional similarity within the propagule pool did not affect recruitment across a range of seed supply; likewise, functional diversity of the propagule pool was not related to community diversity. We conclude that seed limitation of the dominant species rather than niche similarity influences interspecific competition for safe sites and scales up to affect community-level diversity.