Aims <p>Species-rich grasslands are proposed to promote biodiversity and reduce nitrogen (N) fertilization while maintaining productivity. However, the effectiveness of this strategy remains uncertain, particularly since grasslands with varying species richness are managed differently. We compared biomass yield and forage quality of three grassland management types varying in species richness and N fertilization levels in an on-farm context.</p> Methods <p>We compared biomass yield and forage quality of three grassland management types: permanent grassland (<i>Lolium perenne</i> L. dominated) and multispecies grassland (sown with grasses, forbs, and legumes) fertilized with 0, 150, and 300&#xa0;kg N ha⁻¹, and unfertilized semi-natural grassland (highly species-diverse) at twelve farm locations over two years.</p> Results <p>Multispecies grasslands with 150&#xa0;kg N ha⁻¹ produced yields similar to permanent grasslands fertilized with 300&#xa0;kg N ha⁻¹ due to higher legume cover and biological N₂ fixation. Nitrogen fertilization negatively impacted legume cover and likely reduced biological N₂ fixation. Multispecies grassland differed less in in terms of yield over two years with varying weather conditions, suggesting enhanced drought tolerance. Semi-natural grasslands had the highest species richness but the lowest biomass yields and forage quality.</p> Conclusions <p>Transitioning from permanent- to multispecies grasslands presents a promising diversification strategy for livestock farmers aiming to improve sustainability and biodiversity, while reducing N fertilization and maintaining productivity. Yet, species richness remains substantially higher in semi-natural grasslands at the cost of reduced biomass yield and forage quality. Optimization of N fertilization should be considered to improve persistence of legumes and forbs in agricultural multispecies grasslands.</p>