Agricultural intensification is one of the main causes of biodiversity loss world-wide. The inclusion of semi-natural features in agricultural landscapes is suggested as a means of enhancing farm biodiversity, but this practice may have potential negative effects on yield production. Moreover, little evidence exists for effects of semi-natural features on other components of biodiversity, such as functional diversity. Yet this could provide a more comprehensive understanding of biodiversity–productivity trade-offs. Here, we report the effects of semi-natural woody vegetation on taxonomic and functional diversity, and biomass production of herbaceous species at the field and farm scales by sampling 50 fields, ranging from 0 to 90% woody vegetation cover, on nine similarly managed farms in central-western Spain. We found significant differences in herbaceous species richness among farms. Both taxonomic and functional β-diversity exhibited significant negative relationships with herbage production, highlighting the trade-off between biodiversity and productivity in these agroecosystems. Woody vegetation cover had a significant negative relationship with biomass production and a unimodal relationship with species richness at the field scale. At high values of woody vegetation cover, species richness and functional diversity indices were decoupled, suggesting that at this extreme of the woody vegetation gradient, only herbaceous species with contrasting trait values were present. Our results showed both convergent and divergent patterns of trait values, suggesting that different assembly processes are acting concurrently along the gradient of woody vegetation. Synthesis and applications. Our result indicates that management of woody vegetation may indeed increase both taxonomic and functional diversity, but this may come at the expense of key ecosystem services or other management goals, namely herbage production. Optimization of the trade-off between herbage diversity and productivity can be reached with a woody vegetation cover of c. 30% at the field scale.