Nitrogen (N) deposition is widely considered an environmental problem that leads to biodiversity loss and reduced ecosystem resilience; but, N fertilization has also been used as a management tool for enhancing primary production and ground cover, thereby promoting the restoration of degraded lands. However, empirical evaluation of these contrasting impacts is lacking. We tested the dual effects of N enrichment on biodiversity and ecosystem functioning at different organizational levels (i.e., plant species, functional groups, and community) by adding N at 0, 1.75, 5.25, 10.5, 17.5, and 28.0 g N m−2 yr−1 for four years in two contrasting field sites in Inner Mongolia: an undisturbed mature grassland and a nearby degraded grassland of the same type. N addition had both quantitatively and qualitatively different effects on the two communities. In the mature community, N addition led to a large reduction in species richness, accompanied by increased dominance of early successional annuals and loss of perennial grasses and forbs at all N input rates. In the degraded community, however, N addition increased the productivity and dominance of perennial rhizomatous grasses, with only a slight reduction in species richness and no significant change in annual abundance. The mature grassland was much more sensitive to N-induced changes in community structure, likely as a result of higher soil moisture accentuating limitation by N alone. Our findings suggest that the critical threshold for N-induced species loss to mature Eurasian grasslands is below 1.75 g N m−2 yr−1, and that changes in aboveground biomass, species richness, and plant functional group composition to both mature and degraded ecosystems saturate at N addition rates of approximately 10.5 g N m−2 yr−1. This work highlights the tradeoffs that exist in assessing the total impact of N deposition on ecosystem function.