Ongoing habitat loss and fragmentation alter the functional diversity of forests. Generalising the magnitude of change in functional diversity of fragmented landscapes and its drivers is challenging because of the multiple scales at which landscape fragmentation takes place. Here we propose a multi-scale approach to determine whether fragmentation processes at the local and landscape scales are reducing functional diversity of trees in the East Usambara Mountains, Tanzania. We employ a structural equation modelling approach using five key plant traits (seed length, dispersal mode, shade tolerance, maximum tree height, and wood density) to better understand the functional responses of trees to fragmentation at multiple scales. Our results suggest both direct and indirect effects of forest fragmentation on tree functional richness, evenness and divergence. A reduction in fragment area appears to exacerbate the negative effects resulting from an increased amount of edge habitat and loss of shape complexity, further reducing richness and evenness of traits related to resource acquisition and favouring tree species with fast growth. As anthropogenic disturbances affect forests around the world, we advocate to include the direct and indirect effects of forest fragmentation processes to gain a better understanding of shifts in functional diversity that can inform future management efforts.