Grassland enclosure may greatly affect soil water repellency (SWR) by increasing soil organic matter accumulation and altering microbial community structure, potentially increasing the risk of soil erosion. Despite the growing focus on SWR in many regions of the world, the relationship between SWR and microbial community and potential functions following grassland enclosure remains unclear. Here, the water drop penetration time method (WDPT) was used to evaluate the persistence of SWR within a 51-year enclosure grassland (14a, 23a, 32a, 40a, and 51a). The bacterial and fungal communities were identified using 16S and ITS rRNA gene sequencing, while the potential functions of bacteria and fungi were predicted using the PICRUSt2 and FUNGuild databases. The results showed that grassland enclosure significantly promoted SWR, which increased WDPT from 10.2 s, 25.1 s, and 13.6 s, in 14a, 23a, and 32a grasslands, respectively, to 205.7 s and 198.6 s in 40a and 51a grasslands, respectively. Additionally, grassland enclosure suppressed Proteobacteria, Bacteroidetes, and Planctomycetota while promoting the growth of rare bacteria and bacterial diversity (alpha, /3-diversity). Furthermore, grassland enclosure increased the relative abundance of Mortierellomycota, Glomeromycota, rare fungal phyla, and enhanced fungial diversity (alpha, /3-diversity). The key microbial factors driving SWR were identified as Bacteroidetes, bacterial /3-diversity, rare bacteria, Mortierellomycota, Glomeromycota, rare fungi, and fungial diversity (alpha, /3-diversity), which were influenced by plant (aboveground biomass, litter) and soil (organic carbon, total N, available P) factors. The relationships between SWR and key microbial taxa were mainly attributed to the increase in lipid and energy metabolism of bacteria and the enhanced function of saprotrophic fungi. The structural equation model (SEM) further suggested that grassland enclosure indirectly influenced SWR by regulating fungal diversity, which was primarily driven by plant litter and bacterial diversity. Consequently, linking fungal diversity with SWR is crucial for deepening the understanding of water and soil conservation and for evaluating the benefits of grassland restoration in Loess Plateau Regions.