Habitat loss is one of the greatest threats to biodiversity, causing negative effects on the biodiversity of natural vegetation remnants. Brazil’s southern grasslands belong to one of the largest temperate grassland regions in the world and stretch over two biomes. 50% of their natural extent in Rio Grande do Sul, Brazil’s southernmost state, has been lost in only 35 years due to agricultural expansion. To date, there is no empirical evidence for the effects of habitat loss on these grasslands' biological diversity, undermining their conservation. Using data from a large-scale biodiversity survey, we asked here if local plant communities respond to levels of habitat loss representative of the entire region (≤50%). Vegetation in grassland remnants was sampled in 24 landscapes at three 70 x 70 m localities each, using 9 plots of 1 m2 per locality. To investigate whether species losses were a consequence of stochastic or nonrandom local extinctions and whether plant communities became more homogenized in terms of spatial variation and lineages, we evaluated species richness, beta-diversity components (spatial turnover and nestedness), as well as phylogenetic diversity, in respect to landscape change. In part of the landscapes, arthropods were sampled to investigate if loss of plant diversity had a cascading effect on other trophic levels. We evaluated generic richness of ants, an omnivore group with high levels of plant associations, in respect to a plant community’s phylogenetic diversity. We found local plant communities to have fewer species, less spatial turnover, increased nestedness and lower phylogenetic diversity in landscapes with less grassland cover. Our results suggest that the observed species loss can be linked to taxonomic homogenization and is nonrandom, decreasing the evolutionary diversity within the community. Furthermore, ant richness declined by 50% in plant communities with the lowest phylogenetic diversity, suggesting effects of habitat loss propagate to higher trophic levels. We conclude that the biological diversity of South Brazilian grasslands, both at the producer and consumer level, is at risk under the current rate of land-use conversion, even at habitat losses below 50%. To avoid substantial biodiversity loss, conservation and more restrictive policies for conversion of native grasslands to different land uses in South Brazil are urgent.