Hundreds of wood-inhabiting fungal species are now threatened, principally due to a lack of dead wood in intensively managed forests, but the consequences of reduced fungal diversity on ecosystem functioning are not known. Several experiments have shown that primary productivity is negatively affected by a loss of species, but the effects of microbial diversity on decomposition are less studied. We studied the relationship between fungal diversity and the in vitro decomposition rate of slightly, moderately and heavily decayed Picea abies wood with indigenous fungal communities that were diluted to examine the influence of diversity. Respiration rate, wood-degrading hydrolytic enzymes and fungal community structure were assessed during a 16-week incubation. The number of observed OTUs in DGGE was used as a measure of fungal diversity. Respiration rate increased between early- and late-decay stages. Reduced fungal diversity was associated with lower respiration rates during intermediate stages of decay, but no effects were detected at later stages. The activity of hydrolytic enzymes varied among decay stages and fungal dilutions. Our results suggest that functioning of highly diverse communities of the late-decay stage were more resistant to the loss of diversity than less diverse communities of early decomposers. This indicates the accumulation of functional redundancy during the succession of the fungal community in decomposing substrates.