Arbuscular mycorrhizal (AM) fungi are important soil microorganisms, which can form symbioses with more than 80% of vascular plants in terrestrial ecosystems. It has been demonstrated that AM fungi could improve the growth of host plants through regulation of their physiological and biochemical characteristics. In light of this, AM fungi could regulate plant intra-and inter-specific competition in natural habitats. Recently, using AM fungi to protect plant biodiversity and maintain plant community stability in grassland ecosystems has generated much interest. Here, the functions of AM fungi are discussed at the autecology, population, community and ecosystem levels in order to discover the relationship between AM fungi and host plants. There are three different responses of individual host plants to AM fungi symbiosis, including positive, negative and neutral effects. At the population and community levels, AM fungi could regulate intra- and inter-specific competition by influencing the transportation of nutrients and water among individuals, such as to regulate herbaceous and poisonous plant populations. AM fungi also could maintain plant community structures and plant diversity in grasslands by regulating the plant competition. At the ecosystem level, AM fungi could promote the process of community succession, and thus could be used in bioremediation of damaged ecosystems. This review aims to provide theories and methods for the protection of grassland ecosystems by integrating the uses of AM fungi.