Climate change-driven increases in the frequency of extreme droughts could negatively impact the functioning of grassland ecosystems. While several studies have documented the impact of individual droughts on grassland function, less is known about how grasslands will respond to recurrent drought. We conducted a repeated extreme drought experiment in a semiarid grassland that consisted of three stages: (1) initial drought, (2) recovery, and (3) subsequent drought. We measured aboveground net primary productivity (ANPP), species richness, plant functional traits, and functional diversity. Using structural equation modeling (SEM), we investigated the causal mechanisms of ANPP response to recurrent drought. The initial drought led to reduced ANPP, although this was driven by a differential reduction in the growth of grasses and forbs. Total ANPP completely recovered as the rapid recovery of grass productivity compensated for the slow recovery of forb productivity. The magnitude of ANPP responses to the subsequent drought was greater than the initial drought. The SEMs revealed that soil moisture influenced ANPP responses directly during the initial drought, and indirectly during the subsequent drought by altering community functional trait means and diversity during the subsequent drought. These differential mechanisms alter our fundamental understanding of ecosystem drought sensitivity, which is primarily based on single drought studies.