Many exotic species have been introduced or have escaped into grasslands where they form ‘novel ecosystems’ of species with no evolutionary history of interaction. Novel ecosystems are good model systems for understanding how diversity maintenance mechanisms might differ between species with a history of interaction (natives) and species without a history (exotics) in cases where exotics originated from several continents. We tested for lower species diversity and richness in exotic grasslands and found a negative correlation between species diversity measures and proportion of exotic species across 15 grasslands in an observational study in Texas. We then planted 9-species mixtures of all native or all exotics under ambient or elevated summer precipitation to compare dynamics of diversity and to test if exotic species respond more strongly to altered resource availability. Species diversity was lower in communities of exotic than native species by the second year. Reduced diversity in exotic communities resulted from lower complementarity and higher temporal niche overlap among species and occurred in both ambient and irrigated plots. In general, summer irrigation had additive positive effects and did not interact with native–exotic status. Exotic species and communities had much earlier green-up during spring than natives, and altered inter-correlations among phenology variables. There were no differences in flowering dates. Taken together, our results suggest that rapid and synchronous growth may increase niche overlap among exotic species and reduce local diversity in exotic-dominated grassland communities. Earlier green-up by exotics may complicate attempts to ascertain relationships between phenology and climate. An increase in exotic species may cause earlier green-up regardless of any climate change effects and our results suggest that phenology networks should take a species-based rather than an ecosystem approach to evaluate green-up if the abundance of exotics increases within the time-frame in question. These differences between native and exotic species and communities should be considered in future management and restoration projects.