Plant litter decomposition is a critical ecosystem process representing a major pathway for carbon flux, but little is known about how it is affected by changes in plant composition and diversity. Single plant functional groups (graminoids, legumes, non-leguminous forbs) were removed from a grassland in northern Canada to examine the impacts of functional group identity on decomposition. Removals were conducted within two different environmental contexts (fertilization and fungicide application) to examine the context-dependency of these identity effects. We examined two different mechanisms by which the loss of plant functional groups may impact decomposition: effects of the living plant community on the decomposition microenvironment, and changes in the species composition of the decomposing litter, as well as the interaction between these mechanisms. We show that the identity of the plant functional group removed affects decomposition through both mechanisms. Removal of both graminoids and forbs slowed decomposition through changes in the decomposition microenvironment. We found non-additive effects of litter mixing, with both the direction and identity of the functional group responsible depending on year; in 2004 graminoids positively influenced decomposition whereas in 2006 forbs negatively influenced decomposition rate. Although these two mechanisms act independently, their effects may be additive if both mechanisms are considered simultaneously. It is essential to understand the variety of mechanisms through which even a single ecosystem property is affected if we are to predict the future consequences of biodiversity loss.