Climate change has resulted in altered hydrothermal conditions and variation in soil moisture content which affects plant community structure and function on the Loess Plateau. The effect of soil water on the plant community in the semiarid natural grassland of the Loess Plateau was investigated using a large scale randomized design trial. Key results were: 1) Above-ground biomass and litter biomass were significantly positively correlated with soil water content. 2) Plant diversity and species richness were significantly positively correlated with soil moisture. 3) Plant functional groups were also affected by soil water content; both grass and legume species increased significantly with increase in soil water content, whereas forbs decreased significantly. It was concluded that soil moisture is one of the most important factors limiting community productivity and plant species diversity. Additionally, grass species may be able to indicate or reflect soil moisture status. Soil moisture changes may be driving plant community succession in semi-arid grassland.