Understanding how biodiversity affects functioning of ecosystems requires integrating diversity within trophic levels (horizontal diversity) and across trophic levels (vertical diversity, including food chain length and omnivory). We review theoretical and experimental progress toward this goal. Generally, experiments show that biomass and resource use increase similarly with horizontal diversity of either producers or consumers. Among prey, higher diversity often increases resistance to predation, due to increased probability of including inedible species and reduced efficiency of specialist predators confronted with diverse prey. Among predators, changing diversity can cascade to affect plant biomass, but the strength and sign of this effect depend on the degree of omnivory and prey behaviour. Horizontal and vertical diversity also interact: adding a trophic level can qualitatively change diversity effects at adjacent levels. Multitrophic interactions produce a richer variety of diversity-functioning relationships than the monotonic changes predicted for single trophic levels. This complexity depends on the degree of consumer dietary generalism, trade-offs between competitive ability and resistance to predation, intraguild predation and openness to migration. Although complementarity and selection effects occur in both animals and plants, few studies have conclusively documented the mechanisms mediating diversity effects. Understanding how biodiversity affects functioning of complex ecosystems will benefit from integrating theory and experiments with simulations and network-based approaches.