Declining ecosystem services have prompted numerous studies aiming at developing more sustainable management practices for vegetation restoration. Advances in functional ecology indicate that the sustainable management of afforestation ecosystems should be performed based on plant functional traits, which provides pivotal knowledge for long-term sustainable vegetation restoration. Currently, the mechanism of how plant functional traits affect long term ecosystem services in restored areas is still unclear. This study investigates plant functional traits and the associated ecosystem services from artificial forestlands (Robinia pseudoacacia, Caragana korshinskii) and natural grasslands following different durations of vegetation restoration (10, 20, 30 and 40 years) in the Danangou watershed, a loess hilly-gully region in the Loess Plateau, China. The results showed that 1) the water conservation services of artificial forestlands first decreased and then increased over time, whereas the soil conservation service had an opposite trend; in turn, natural grassland led to a consistent increase in soil conservation and carbon sequestration services over time. 2) Artificial forestlands had greater soil conservation and carbon sequestration services than natural grassland but had lower water conservation services. 3) Leaves had a greater impact on carbon sequestration and water conservation services than did root length and root biomass density. 4) Root biomass density had a greater effect on soil conservation services than did leaf carbon content and soil organic matter. 5) Leaf carbon content, specific root length, and root biomass density had significant effects on the trade-off value between any two ecosystem services with increasing time after restoration of artificial forestland. 6) Specific leaf area had a greater effect on the trade-off values among the three services than did the other functional traits in the natural grassland. In arid ecosystems, natural grasslands are the best restoration strategy given their higher water conservation services. However, in soil erosion-affected areas, restoration through artificial forestlands is more appropriate. To mitigate the trade-offs between ecosystem services, it is recommended that artificial forestlands be thinned before the leaf carbon content, specific root length, and root biomass density reach a maximum (i.e., mature forestland).