One of the most important changes taking place in drylands worldwide is the increase of the cover and dominance of shrubs in areas formerly devoid of them (shrub encroachment). A large body of research has evaluated the causes and consequences of shrub encroachment for both ecosystem structure and functioning. However, there are virtually no studies evaluating how shrub encroachment affects the ability of ecosystems to maintain multiple functions and services simultaneously (multifunctionality). We aimed to do so by gathering data from ten ecosystem functions linked to the maintenance of primary production and nutrient cycling and storage (organic C, activity of β-glucosidase, pentoses, hexoses, total N, total available N, amino acids, proteins, available inorganic P and phosphatase activity), and summarizing them in a multifunctionality index (M). We assessed how climate, species richness, anthropic factors (distance to the nearest town, sandy and asphalted road, and human population in the nearest town at several historical periods) and encroachment by sprouting shrubs impacted both the functions in isolation and M along a regional (ca. 350 km) gradient in Mediterranean grasslands and shrublands dominated by a non-sprouting shrub. Values of M were higher in those grasslands and shrublands containing sprouting shrubs (43% and 62%, respectively). A similar response was found when analyzing the different functions in isolation, as encroachment by sprouting shrubs increased functions by 2%–80% compared to unencroached areas. Encroachment was the main driver of changes in M along the regional gradient evaluated, followed by anthropic factors and species richness. Climate had little effects on M in comparison to the other factors studied. Similar responses were observed when evaluating the functions in isolation. Overall, our results showed that M was higher at sites with higher sprouting shrub cover, longer distance to roads and higher perennial plant species richness. Our study is the first documenting that ecosystem multifunctionality in shrublands is enhanced by encroaching shrubs differing in size and leaf attributes. Our findings reinforce the idea that encroachment effects on ecosystem functioning cannot be generalized, and that are largely dependent on the traits of the encroaching shrub relative to those of the species being replaced.