Using prairie biomass as a renewable source of energy may constitute an important opportunity to improve the environmental sustainability of managed land. To date, assessments of the feasibility of using prairies for bioenergy production have focused on marginal areas with low yield potential. Growing prairies on more fertile soil or with moderate levels of fertilization may be an effective means of increasing yields, but increased fertility often reduces plant community diversity. At a fertile site in central Iowa with high production potential, we tested the hypothesis that nitrogen fertilization would increase aboveground biomass production but would decrease diversity of prairies sown and managed for bioenergy production. Over a 3 year period (years 2–4 after seeding), we measured aboveground biomass after plant senescence and species and functional-group diversity in June and August for multispecies mixtures of prairie plants that received no fertilizer or 84 kg N ha−1 year−1. We found that nitrogen fertilization increased aboveground biomass production, but with or without fertilization, the prairies produced a substantial amount of biomass: averaging (±SE) 12.2 ± 1.3 and 9.1 ± 1.0 Mg ha−1 in fertilized and unfertilized prairies, respectively. Unfertilized prairies had higher species diversity in June, whereas fertilized prairies had higher species diversity in August at the end of the study period. Functional-group diversity was almost always higher in fertilized prairies. Composition of unfertilized prairies was characterized by native C4 grasses and legumes, whereas fertilized prairies were characterized by native C3 grasses and forbs. Although most research has found that nitrogen fertilization reduces prairie diversity, our results indicate that early-spring nitrogen fertilization, when used with a postsenescence annual harvest, may increase prairie diversity. Managing prairies for bioenergy production, including the judicious use of fertilization, may be an effective means of increasing the amount of saleable products from managed lands while potentially increasing plant diversity.