Diversity of Plant Functional Types (PFTs) along a sediment core drilled in Lonar Crater Lake, Central India, is analysed, based on previously published pollen data for a total of 115 depth levels and covering the past 9.2 kyr. Our results support concepts of a dominantly humid period persisting until ca. 5 ka, succeeded by a significantly drier phase with weaker monsoon, including various prominent drying pulses. Throughout the Holocene, plant diversity at Lonar was composed of a variable proportion of herbaceous PFTs (ca. 40–60%) and mainly angiosperm woody PFTs. Changes in herbaceous diversity account for a considerable part of the observed PFT data variability. PCA analysis reveals a total of four partly alternating diversity associations (DAs) interpretable in terms of vegetation spanning from drier Savanna and dry deciduous forest to (semi-) evergreen woody vegetation, mainly recorded in older strata. It is shown that the succession of the DAs is largely triggered by climate change inferred from other proxies. Correlation analysis with geochemical data testifies that the diversity signal obtained is largely unaffected by sedimentary processes and detrital inflow, highlighting the potential of this archive to reflect ‘true’ diversity signals, rather than artefacts of sedimentary processes. While warm and humid conditions promoted diversity, drying and weak monsoon tended to cause diversity loss. In contrast, the relative diversity of dry herbs increased during drier periods. Short-term variability in our data is evident in varying diversity percentages of single PFTs and their ratios. Changing ratios of dry on mesic herbs, the relation of shrub and tree diversity, tropical on temperate PFTs, and total plant diversity are likely related to solar cycles. Evidence for recurrent cooling episodes through solar forcing comes from the observed coincidence of Grand Solar Minima and minima in the tropical/temperate PFT ratio.