Numerous studies have suggested that biodiversity reduces variability in ecosystem productivity through compensatory effects; that is, a species increases in its abundance in response to the reduction of another in a fluctuating environment. But this view has been challenged on several grounds. Because most studies have been based on artificially constructed grasslands with short duration, long-term studies of natural ecosystems are needed. On the basis of a 24-year study of the Inner Mongolia grassland, here we present three key findings. First, that January-July precipitation is the primary climatic factor causing fluctuations in community biomass production; second, that ecosystem stability (conversely related to variability in community biomass production) increases progressively along the hierarchy of organizational levels (that is, from species to functional group to whole community); and finally, that the community-level stability seems to arise from compensatory interactions among major components at both species and functional group levels. From a hierarchical perspective, our results corroborate some previous findings of compensatory effects. Undisturbed mature steppe ecosystems seem to culminate with high biodiversity, productivity and ecosystem stability concurrently. Because these relationships are correlational, further studies are necessary to verify the causation among these factors. Our study provides new insights for better management and restoration of the rapidly degrading Inner Mongolia grassland.