Abstract. Abundant evidence has shown that grazing alters plant functional traits, ecological strategies, community structure, and ecosystem functioning of grasslands. Few studies, however, have examined how plant responses to grazing are mediated by resource availability and functional group identity. We test functional trait-based mechanisms underlying the responses of different life forms to grazing and linkages to ecosystem functioning along a soil moisture gradient in the Inner Mongolia grassland. A principal component analysis (PCA) based on 9 traits × 276 species matrix showed that the plant size spectrum (i.e., individual biomass), leaf economics spectrum (leaf N content and leaf density), and light competition spectrum (height and stem-leaf biomass ratio) distinguished plant species responses to grazing. The three life forms exhibited differential strategies as indicated by trait responses to grazing. The annuals and biennials adopted grazing-tolerant strategies associated with high growth rate, reflected by high leaf N content and specific leaf area. The perennial grasses exhibited grazing-tolerant strategies associated with great regrowth capacity and high palatability scores, whereas perennial forbs showed grazing-avoidant strategies with short stature and low palatability scores. In addition, the dominant perennial bunchgrasses exhibited mixed tolerance–resistance strategies to grazing and mixed acquisitive–conservative strategies in resource utilization. Grazing increased the relative abundance of perennial forbs with low palatability in the wet and fertile meadow, but it promoted perennial grasses with high palatability in the dry and infertile typical steppe. Our findings suggest that the effects of grazing on plant functional traits are dependent on both the abiotic (e.g., soil moisture) and biotic (e.g., plant functional group identity and composition) factors. Grazing-induced shifts in functional group composition are largely dependent on resource availability, particularly water availability.