1. Assembly of grassland communities has long been scrutinized through the lens of functional diversity. Studies generally point to an overwhelming influence of climate on observed patterns of functional diversity, despite experimental evidence demonstrating the importance of biotic interactions. We postulate that this is because most observational studies neglect both scale dependencies of assembly processes and phenotypic variation between individuals. Here, we test for changes in the importance of abiotic filtering and biotic interactions along a stress gradient by explicitly accounting for different scales. In addition to quantifying intraspecific trait variability (ITV), we also vary the two components of spatial scale, including grain (i.e. community size) and extent (i.e. the geographical area that defines the species pool). 2. We sampled 20 grassland communities in ten sites distributed along a 975-m elevation gradient. At each site, we measured seven functional traits for a total of 2020 individuals at different spatial grains. We related community functional diversity metrics to the main environmental gradient of our study area, growing season length (GSL), and assessed the dependence of these relationships on spatial grain, spatial extent and ITV. 3. At large spatial grain and extent, the imprint of environmental filtering on functional diversity became more important with increasing stress (i.e. functional diversity decreased with shorter GSL). At small spatial grain and extent, we found a convex relationship between functional diversity and GSL congruent with the hypothesis that competition is dominant at low-stress levels while facilitative interactions are dominant at high-stress levels (i. e. high functional diversity at both extremes of the stress gradient). Importantly, the effect of intraspecific variability on assembly rules was noticeable only at small spatial grain and extent. 4. Synthesis. Our study reveals how the combination of abiotic stress and biotic interactions shapes the functional diversity of alpine grasslands at different spatial scales, and highlights the importance of phenotype variation between individuals for community assembly processes at fine spatial scale. Our results suggest that studies analysing trait-based assembly rules but ignoring ITV and focusing on a single spatial scale are likely to miss essential features of community diversity patterns.