Grassland biodiversity is vital for the provision of multiple ecosystem functions, termed ecosystem multifunctionality. As an effective practice of grassland management, grazing exclusion is widely used to restore the ecosystem multifunctionality of degraded grasslands, but it might not be always beneficial for conserving grassland biodiversity. Moreover, when grazing is excluded, it remains unknown whether grassland biodiversity promotes multifunctionality. Here, we conducted a field experiment of grazing exclusion along a gradient of climatic aridity across four major grassland types in the arid grasslands of northern China. We determined the effects of grazing exclusion on biodiversity and multifunctionality, and further investigated how grazing exclusion could modify biodiversity-multifunctionality relationships. We found that grazing exclusion increased soil fungal diversity, but had negligible effects on plant species richness and soil bacterial diversity. The effects of grazing exclusion on multifunctionality varied among grassland types: it promoted multifunctionality only in less arid grasslands. Importantly, multifunctionality was positively associated with plant species richness under grazing, but this positive association disappeared under grazing exclusion. In addition, we showed that climatic aridity affected multifunctionality indirectly through its negative effect on plant species richness under grazing, whereas such effect disappeared under grazing exclusion. Furthermore, aridity weakly reduced multifunctionality under grazing, and its negative effect was strengthened under grazing exclusion. Our results suggest that grazing exclusion restrains the capacity of plant biodiversity to sustain multiple ecosystem functions, and moreover, aggravates the negative influences of climatic dryness on ecosystem multifunctionality. Our findings illustrate the value of grazing for maintaining biodiversity-multifunctionality relationships and for mitigating the impacts of climate change in arid grasslands.