Shrub encroachment into grasslands is a widespread phenomenon in drylands, which alters ecosystem structure, processes and functions. Ecosystems have the ability to provide multiple functions simultaneously (ecosystem multifunctionality). However, it remains unclear whether shrub encroachment results in reductions in grassland ecosystem multifunctionality and what are the underpinned mechanisms. Understanding the impact of shrub encroachment on multifunctionality can help promoting the balance between "grass-livestock-human welfare" and achieve grassland sustainable development. In this study, we synthesized the research progresses on the impact of shrub encroachment on ecosystem multifunctionality from the perspectives of response patterns, impact pathways and regulation factors. It mainly includes (1) illustrating the response of single function and multiple functions to shrub encroachment; (2) explicating the impact of shrub encroachment on ecosystem multifunctionality via biotic and abiotic pathways and how it is mitigated by climate change and human activities; (3) synthesizing the regulators (i.e., shrub species, encroachment stages and grassland types) of the impact of shrub encroachment on ecosystem multifunctionality. Based on the syntheses above, we further made perspectives on the impact of shrub encroachment on multifunctionality and the tradeoffs between production-ecological functions. Finally, based on sustainable development goals, we discussed the potential ways to achieve sustainable development in the encroached ecosystems. This study can provide support for the restoration and management of encroached grasslands in China.