Habitat fragmentation is widespread across ecosystems, detrimentally affecting biodiversity. Although most habitat fragmentation studies have been conducted on macroscopic organisms, microbial communities and fungal processes may also be threatened by fragmentation. This study investigated whether fragmentation, and the effects of fragmentation on plants, altered fungal diversity and function within a fragmented shrubland in southern California. Using fluorimetric techniques, we assayed enzymes from plant litter collected from fragments of varying sizes to investigate enzymatic responses to fragmentation. To isolate the effects of plant richness from those of fragment size on fungi, we deployed litter bags containing different levels of plant litter diversity into the largest fragment and incubated in the field for one year. Following field incubation, we determined litter mass loss and conducted molecular analyses of fungal communities. We found that leaf-litter enzyme activity declined in smaller habitat fragments with less diverse vegetation. Moreover, we detected greater litter mass loss in litter bags containing more diverse plant litter. Additionally, bags with greater plant litter diversity harbored greater numbers of fungal taxa. These findings suggest that both plant litter resources and fungal function may be affected by habitat fragmentation's constraints on plants, possibly because plant species differ chemically, and may thus decompose at different rates. Diverse plant assemblages may produce a greater variety of litter resources and provide more ecological niche space, which may support greater numbers of fungal taxa. Thus, reduced plant diversity may constrain both fungal taxa richness and decomposition in fragmented coastal shrublands. Altogether, our findings provide evidence that even fungi may be affected by human-driven habitat fragmentation via direct effects of fragmentation on plants. Our findings underscore the importance of restoring diverse vegetation communities within larger coastal sage scrub fragments and suggest that this may be an effective way to improve the functional capacity of degraded sites.