Functional diversity is a component of biodiversity that generally concerns the range of things that organisms do in communities and ecosystems. Here, we review how functional diversity can explain and predict the impact of organisms on ecosystems and thereby provide a mechanistic link between the two. Critical points in developing predictive measures of functional diversity are the choice of functional traits with which organisms are distinguished, how the diversity of that trait information is summarized into a measure of functional diversity, and that the measures of functional diversity are validated through quantitative analyses and experimental tests. There is a vast amount of trait information available for plant species and a substantial amount for animals. Choosing which traits to include in a particular measure of functional diversity will depend on the specific aims of a particular study. Quantitative methods for choosing traits and for assigning weighting to traits are being developed, but need much more work before we can be confident about trait choice. The number of ways of measuring functional diversity is growing rapidly. We divide them into four main groups. The first, the number of functional groups or types, has significant problems and researchers are more frequently using measures that do not require species to be grouped. Of these, some measure diversity by summarizing distances between species in trait space, some by estimating the size of the dendrogram required to describe the difference, and some include information about species’ abundances. We show some new and important differences between these, as well as what they indicate about the responses of assemblages to loss of individuals. There is good experimental and analytical evidence that functional diversity can provide a link between organisms and ecosystems but greater validation of measures is required. We suggest that non-significant results have a range of alternate explanations that do not necessarily contradict positive effects of functional diversity. Finally, we suggest areas for development of techniques used to measure functional diversity, highlight some exciting questions that are being addressed using ideas about functional diversity, and suggest some directions for novel research.