Human activities have caused non-native plant species with novel ecological interactions to persist on landscapes, and it remains controversial whether these species alter multiple aspects of communities and ecosystems. We tested whether native and exotic grasslands differ in species diversity, ecosystem services, and an important aspect of functional diversity (C3:C4 proportions) by sampling 42 sites along a latitudinal gradient and conducting a controlled experiment. Exotic-dominated grasslands had drastically lower plant diversity and slightly higher tissue N concentrations and forage quality compared to native-dominated sites. Exotic sites were strongly dominated by C4 species at southern and C3 species at northern latitudes with a sharp transition at 36–38°, whereas native sites contained C3:C4 mixtures. Large differences in C3:C4 proportions and temporal niche partitioning were found between native and exotic mixtures in the experiment, implying that differences in C3:C4 proportions along the latitudinal gradient are caused partially by species themselves. Our results indicate that the replacement of native- by exotic-dominated grasslands has created a management tradeoff (high diversity versus high levels of certain ecosystem services) and that models of global change impacts and C3/C4 distribution should consider effects of exotic species.