Aridity and grazing are two dominant factors shaping grassland biodiversity and ecosystem functioning, but their interaction effects remain unclear. We selected 65 paired grazed and ungrazed sites along a natural aridity gradient in the Inner Mongolian grassland. We analyzed the effects of aridity and grazing on ecosystem multi-functionality, plant diversity, soil multitrophic diversity, and multitrophic network complexity. We found aridity significantly affected plant diversity, soil multitrophic diversity, network complexity, and ecosystem multi-functionality, while its interaction with grazing affected plant diversity and network complexity. Whether grazing or not, plant diversity, soil multitrophic diversity, as well as ecosystem multifunctionality, consistently decreased with aridity, and grazing exacerbated the loss of plant diversity in arid areas. Soil multitrophic network complexity and the proportion of positive interactions among trophic groups also decreased with increasing aridity in both ungrazed and grazed grasslands. Conversely, grazing increased the proportion of positive interactions in both arid and semiarid areas. Overall, aridity had stronger negative effects than grazing. Both aridity and grazing reduced ecosystem multifunctionality. Aridity further reduced network complexity by decreasing plant diversity and soil multitrophic diversity, thereby indirectly regulating ecosystem multi-functionality. Our results demonstrate that aridity is the primary driving factor of grassland ecosystem multi-functionality compared with grazing. Grazing exacerbates the adverse impacts of aridity on biodiversity and ecosystem functioning, emphasizing the need for optimized grassland management in light of global change and land-use pressures.