Although precipitation interannual variability is projected to increase due to climate change, effects of changes in precipitation variance have received considerable less attention than effects of changes in the mean state of climate. Interannual precipitation variability effects on functional diversity and its consequences for ecosystem functioning are assessed here using a 6-year rainfall manipulation experiment. Five precipitation treatments were switched annually resulting in increased levels of precipitation variability while maintaining average precipitation constant. Functional diversity showed a positive response to increased variability due to increased evenness. Dominant grasses decreased and rare plant functional types increased in abundance because grasses showed a hump-shaped response to precipitation with a maximum around modal precipitation, whereas rare species peaked at high precipitation values. Increased functional diversity ameliorated negative effects of precipitation variability on primary production. Rare species buffered the effect of precipitation variability on the variability in total productivity because their variance decreases with increasing precipitation variance.