Plant species and functional groups in nitrogen (N) limited communities may coexist through strong eco-physiological niche differentiation, leading to idiosyncratic responses to multiple nutrition and disturbance regimes. Very little is known about how such responses depend on the availability of N in different chemical forms. Here we hypothesize that idiosyncratic year-to-year responses of plant functional groups to availability and form of nitrogen explain species coexistence in an alpine meadow community after release from grazing. We conducted a 6 year N addition experiment in an alpine meadow on the Tibetan Plateau released from grazing by livestock. The experimental design featured three N forms (ammonium, nitrate, and ammonium nitrate), crossed with three levels of N supply rates (0.375, 1.500 and 7.500 g N m−2 yr−1), with unfertilized treatments without and with light grazing as controls. All treatments showed increasing productivity and decreasing species richness after cessation of grazing and these responses were stronger at higher N rates. Although N forms did not affect aboveground biomass at community level, different functional groups did show different responses to N chemical form and supply rate and these responses varied from year to year. In support of our hypothesis, these idiosyncratic responses seemed to enable a substantial diversity and biomass of sedges, forbs, and legumes to still coexist with the increasingly productive grasses in the absence of grazing, at least at low and intermediate N availability regimes. This study provides direct field-based evidence in support of the hypothesis that idiosyncratic and annually varying responses to both N quantity and quality may be a key driver of community structure and species coexistence. This finding has important implications for the diversity and functioning of other ecosystems with spatial and temporal variation in available N quantity and quality as related to changing atmospheric N deposition, land-use, and climate-induced soil warming.