Biodiversity is known to promote ecosystem multifunctionality (EMF), but how grassland degradation influences the relationship between biodiversity and EMF remains unclear. Here, using paired observations at 44 sites (a total of 792 sampling quadrats) along a 2,600 km transect, we test how moderate grassland degradation influences 20 surrogates of ecosystem functions, EMF, plant richness, soil bacterial, fungal and protist richness, and biodiversity–EMF relationships in Tibetan alpine grasslands. Our results reveal significant declines in individual ecosystem functions and EMF with moderate grassland degradation. By contrast, both plant richness and integrated soil biodiversity exhibit significant increases. The structural equation models analyses show that following degradation, the effect of soil biodiversity on EMF strengthens, whereas that of plant richness weakens. These findings offer large-scale empirical evidence that moderate grassland degradation can amplify both soil biodiversity and its functional importance, emphasizing the key role of below-ground biodiversity in supporting ecosystem functioning in degraded grasslands.