Drought occurrence is increasing due to anthropogenic climate change. Drought can negatively affect plants via reduced water belowground and increased evaporative demand or vapor pressure deficit (VPD) aboveground. Past work has shown that plant diversity can ameliorate the negative effects of drought in plant communities, but these results are inconsistent between experimental and natural drought studies. Further, while studies on the negative effects of reduced soil moisture on plant growth in drought experiments are abundant, the effects of predicted increases in atmospheric VPD have been neglected. We directly manipulated atmospheric relative humidity in a biodiversity and drought experiment at the California State University, Los Angeles (CA, USA) under three atmospheric conditions (ambient, dehumidified, and humidified), two treatments of native perennial grass diversity (monoculture and 8 species polyculture), and two soil drought treatments (control and drought). We assessed both polyculture plant community and individual species (Poa secunda) responses to atmospheric drought and soil drought. We found that soil drought only limits aboveground biomass production when atmospheric conditions are also dry. We also found that Poa secunda was limited by increased competition in polyculture when ambient atmospheric conditions were humid but was facilitated by diversity when atmospheric conditions were dry.