The threats of land-use intensification to biodiversity have motivated considerable research directed towards understanding the relationship between biodiversity and ecosystem functioning (BEF). Functional diversity is deemed a better indicator than species diversity to clarify the BEF relationships. However, most tests of the BEF relationship have been conducted in highly controlled plant communities, with terrestrial animal communities largely unexplored. Additionally, most BEF studies examined the effects of biodiversity on ecosystem functions, with the effects of ecosystem functioning strength on biodiversity hardly considered. Based on a 6-year long grassland experiment in the typical steppe region of Inner Mongolia, we examined the variation of taxonomic diversity (TD) and functional diversity (FD) of both plant and arthropod communities, and their relations with grassland productivity, across three land management types (moderate grazing, mowing and enclosure). We aimed to clarify the interrelations among plant FD, arthropod FD, grassland productivity and soil factors. We found that: (1) Grassland under mowing performs best in terms of sustaining a high TD and FD of plants and arthropods compared to that under grazing and enclosure. (2) The relationships between plant and arthropod diversity and productivity varied with management types. Plant TD and FD was negatively, whereas arthropod FD was positively, related with productivity under enclosure; plant FD, but not arthropod FD, was positively related with productivity under grazing; arthropod FD, but not plant FD, was negatively related with productivity under mowing. (3) Grassland productivity is positively interrelated with plant FD, but not plant TD; and is negatively interrelated with arthropod TD, but not arthropod FD across different management types. The respective positive versus negative bi-directional relationships of productivity with plant diversity versus arthropod diversity, was majorly a consequence of divergent grazing/mowing effects on plant versus arthropod diversity. The results indicate that grazing increases plant diversity, but decreases arthropod diversity, whereas fall mowing provides a management strategy for conservation of both trophic levels. These results also provide new insights into the effects of land-use changes on biodiversity and ecosystem processes, and indicate the importance of incorporating the functional interrelations among different trophic groups in sustainable grassland management.