Modelling the relationship between biomass and diversity in phytoplankton assemblages provides new insights into the mechanisms responsible for the coexistence of species, even in terrestrial ecosystems. We tested the biomass–diversity relationship in lake phytoplankton along a wide biomass gradient using functional species groups. We hypothesized that changes in the taxonomic diversity of the phytoplankton along a biomass gradient are associated with altered functional diversity. For the analyses, in total 768 samples were collected from 30 oxbows, reservoirs and lakes in the Hungarian Lowland Region and analysed between 1992 and 2002. We found that the diversity and also the number of functional species groups showed a humped-back curve similar to the species richness. The changes in functional group composition act as a good proxy for phytoplankton species responses. We found that the peak of the number of strategy groups and their Shannon diversity was at a much lower biomass than that of species richness. We revealed the fine-scale effects of increasing the dominance of respective species or species groups with increasing biomass. This increase was well reflected by the changes in the functional characteristics: first, the species evenness; then, the Shannon diversity; and finally, the species richness started to decrease with increasing biomass. Cyanoprokaryota were positively correlated with increasing biomass and negatively with the increase in species richness; thus, the high increase both in their abundance and biomass can be responsible for the abruptly decreasing part of the humped-back curve. We detected a humped-back curve between biomass and diversity, where the peak compared to terrestrial plant communities tended to be towards high biomass scores, that is, >60% instead of the 20–60% of the biomass range typical for terrestrial plant communities. Marked differences in the structural and dynamic features of phytoplankton assemblages and terrestrial plant communities are likely responsible for this difference.