Vegetation structure and ecosystem function in the desert steppe of northern China show high spatial heterogeneity during restoration. Understanding how species dominance and soil environmental variation influence the recovery of diversity, productivity, and their interrelationship is critical for sustainable restoration and adaptive management in this region. To address this, we investigated native grasslands (reference systems) and restored grasslands following degradation in the Ningxia desert steppe. We assessed the recovery of diversity (quantified by effective species number), productivity, and their linkage across dominant, common, and rare species groups, and examined the regulatory role of soil properties in these processes. Compared to native grasslands, restored grasslands showed: (1) a significant 12.2 % increase in species richness, mainly driven by rare species; however, the diversity of dominant and common groups decreased significantly by 25.6 and 12.0 %, respectively; (2) a significant reduction in community productivity, with native grassland specialists declining by nearly 80 %, while weed productivity increased by 87.5 %. Across both systems, common ecological mechanisms were observed: (3) productivity was primarily driven by a few dominant and common species with high relative abundance (i.e., lower effective numbers of species), indicating a typical selection effect; (4) Soils with higher clay and silt contents enhanced moisture retention, thereby promoting diversity recovery (greater effective numbers of species) but suppressing productivity. This regulatory pathway was weaker in restored grasslands (R2 = 0.126) than in native systems (R2 = 0.719). Our findings reveal trade-offs between structural and functional recovery in restored grasslands. Enhancing rare species conservation and increasing the abundance and functional dominance of native species under specific soil conditions may improve restoration outcomes. These insights provide a scientific basis for ecosystem management in dryland grasslands.