A 2-year study is presented on the impact of arbuscular mycorrhizal fungi (AMF) on plant productivity, uptake of phosphorus (P) and nitrogen (N) and diversity of plant community in a herbaceous, P and N limited grassland consisting exclusively of C3 species and dominated by two plant species less mycotrophic than the subordinate ones. We hypothesized that AMF suppression will increase the abundance of the dominant species with compensatory decreases of subordinate species and decline of the diversity components. Mycorrhizal colonization was suppressed in field plots through application of the fungicide benomyl as a soil drench every 2 weeks during each growing period. Suppression of mycorrhizae lowered P concentrations of the examined species or species groups and decreased the abundance of the P demanding perennial forbs (the non-legume dicots) and most legumes. Concurrently, there were recorded increases in the abundance of the less P demanding grasses, sedges and the legume Doricnium herbaceum. Many rare forb species were not able to establish in the fungicide-treated plots. As a result, in the fungicide-treated plots there was a decline of the diversity components. In spite of the lower efficiency in soil P use and the lower diversity, primary productivity in the fungicide-treated plots did not differ from that of non-treated plots. It is suggested that AMF are important determinants of plant structure and diversity in P limiting soils, and the direction in which fungicide application affects the diversity of plant communities depends on the mycotrophic status of the dominant and subordinate plant species.