Human activities have increased the availability of nutrients in terrestrial and aquatic ecosystems. In grasslands, this eutrophication causes loss of plant species diversity, but the mechanism of this loss has been difficult to determine. Using experimental grassland plant communities, we found that addition of light to the grassland understory prevented the loss of biodiversity caused by eutrophication. There was no detectable role for competition for soil resources in diversity loss. Thus, competition for light is a major mechanism of plant diversity loss after eutrophication and explains the particular threat of eutrophication to plant diversity. Our conclusions have implications for grassland management and conservation policy and underscore the need to control nutrient enrichment if plant diversity is to be preserved.