Grass cover along a grazing intensity gradient in Patagonia decreases, whereas bare soil and shrub cover increases. Our objective was to study the effect of a change in the dominant plant functional type on soil water balance, primary production, herbivore biomass, roughness, and albedo. Using a soil water balance model, we found increases in evaporation and deep drainage, and a decrease in total transpiration along the grazing intensity gradient. Above-ground primary production, estimated from transpiration, decreased along the grazing intensity gradient because shrubs did not fully compensate for the decrease in grass production. Using a statistical model, we calculated herbivore biomass from estimates of above-ground primary production. Estimated herbivore biomass was lowest in the shrub-dominated extreme of the grazing gradient. Roughness increased from the grass-dominated to the shrub-dominated community. Albedo had a maximum at an intermediate position along the gradient.Our results suggest that changes in plant functional type composition, independent of changes in biomass, affect ecosystem functioning and the exchange of energy and material with the atmosphere. Grasses and shrubs proved to be appropriate plant functional types to link structure and function of ecosystems.