Plant communities are largely reshaped by climate and the environment over millennia, providing a powerful tool for understanding their response to future climates. Using a globally applicable functional palaeocological approach, we provide a deeper understanding of fossil pollen-inferred long-term response of vegetation to past climatic disturbances based on changes in functional trait composition. Specifically, we show how and why the ecological strategies exhibited by vegetation have changed through time by linking observations of plant traits to multiple pollen records from southeast Australia to reconstruct past functional diversity (FD, the value and the range of species traits that influence ecosystem functioning). The drivers of FD changes were assessed quantitatively by comparing FD reconstructions to independent records of past climates. During the last 12,000 years, peaks in FD were associated with both dry and wet climates in southeast Australia, with shifts in leaf traits particularly pronounced under wet conditions. Continentality determined the degree of stability maintained by high FD, with the greatest seen on the mainland. We expect projected frequent drier conditions in southeast Australia over coming decades to drive changes in vegetation community functioning and productivity mirroring the functional palaeocological record, particularly in western Tasmania and western southeast mainland.