The relationship between biodiversity and productivity has been a hot topic in ecology. However, the relative importance of taxonomic diversity and functional characteristics (including functional dominance and functional diversity) in maintaining community productivity and the underlying mechanisms (including selection and complementarity effects) of the relationship between diversity and community productivity have been widely controversial. In this study, 194 sites were surveyed in five grassland types along a precipitation gradient in the Inner Mongolia grassland of China. The relationships between taxonomic diversity (species richness and the Shannon–Weaver index), functional dominance (the community‐weighted mean of four plant traits), functional diversity (Rao's quadratic entropy), and community aboveground biomass were analyzed. The results showed that (1) taxonomic diversity, functional dominance, functional diversity, and community aboveground biomass all increased from low to high precipitation grassland types; (2) there were significant positive linear relationships between taxonomic diversity, functional dominance, functional diversity, and community aboveground biomass; (3) the effect of functional characteristics on community aboveground biomass is greater than that of taxonomic diversity; and (4) community aboveground biomass depends on the community‐weighted mean plant height, which explained 57.1% of the variation in the community aboveground biomass. Our results suggested that functional dominance rather than taxonomic diversity and functional diversity mainly determines community productivity and that the selection effect plays a dominant role in maintaining the relationship between biodiversity and community productivity in the Inner Mongolia grassland.