Stand functional diversity (RaoQ) and stand functional composition in terms of the functional traits of the component species (CWM trait) are critical for ecosystem processes and functioning, such as litter decomposition and associated nutrient cycling. Litter decomposition rates could differ among stands varying in functional diversity and composition because of interspecific variation of resource economic traits in litter quality, as well as differences in microenvironmental conditions. However, whether and how functionally diverse stands with different microenvironmental conditions change the litter decomposition rates among functionally contrasting species is poorly understood. We tested our hypotheses through a litter decomposition study in a tree diversity experiment in subtropical China. We quantified the leaf litter mass losses for acquisitive, intermediate, and conservative species and measured microclimates across 30 stands that represent a range of tree functional diversity and composition over five decomposition periods over 394 days. We found that increasing stand species richness and stand functional diversity were significantly associated with higher leaf litter decomposition rates across all three functionally contrasting litter species. This positive effect did not change with the litter species’ resource acquisition strategies. We also found that increasing stand functional composition along an axis from resource conservative to acquisitive had rather similar humpback relations with leaf litter decomposition rates for all three litter species. Our study provides mechanistic insights into the potential direct and indirect roles of functional trait diversity and composition in driving litter decomposition, and these insights are relevant to many ecosystem types globally.