Abstract: Water and nitrogen availability are pivotal drivers of plant growth and development in desert ecosystems. However, how they influence the functional diversity of desert plant communities and ecosystem multifunctionality (EMF) remains unclear. This study presents findings from a nine-year field experiment carried out in a typical Artemisia ordosica community in the Mu Us Desert. This experiment examines the effects of water and nitrogen addition. In this study, an array of plant functional traits — including plant height, specific leaf area, leaf dry matter content, and leaf nitrogen and phosphorus content, are quantified to calculate community-weighted mean (CWM) values and functional diversity indices. To assess EMF, the research measures plant productivity, soil fertility, and soil extracellular enzyme activities. It subsequently analyzes the effects of water and nitrogen addition on both community functional diversity and EMF. The results showed that: (1) While water addition significantly increased the community–weighted mean of plant height (CWMHeight), it reduced the community-weighted mean of leaf nitrogen (CWMLNC) and community–weighted mean of leaf phosphorus (CWMLPC) content. Nitrogen addition led to decreases in CWMHeight and CWMLPC content, but resulted in an increase in the community–weighted mean of leaf dry matter content (CWMLDMC). Furthermore, water addition significantly enhanced the positive effect of nitrogen addition on CWMSLA, while significantly reducing the positive effect of nitrogen addition on CWMLPC content. (2) Water addition substantially increased functional dispersion (FDis), while the water–nitrogen interaction notably reduced the functional richness (FRic). (3) Water and nitrogen addition, as well as their interaction, markedly altered soil available nutrients and certain extracellular enzyme activities. Moreover, soil available phosphorus (SAP) showed a negative correlation with aboveground net primary productivity (ANPP). None of these treatments, however, had a notable direct impact on overall EMF. (4) Water addition indirectly reduced EMF by elevating CWMSLA, while nitrogen addition indirectly reduced EMF by simultaneously decreasing FRic and enhancing CWMSLA. These findings collectively suggest that water and nitrogen addition drive the A. ordosica community toward a resource-acquisitive strategy, which suppresses niche differentiation, intensifies intra-community competition, and accelerates nutrient consumption. Under scenarios of heightened precipitation and nitrogen deposition, this resource-acquisitive shift may lead to a decline in EMF and potentially compromise ecosystem stability.