Habitat loss often reduces the number of species as well as functional diversity. Dramatic effects to species composition have also been shown, but changes to functional composition have so far been poorly documented, partly owing to a lack of appropriate indices. We here develop three new community indices (i.e. functional integrity, community integrity of ecological groups and community specialization) to investigate how habitat loss affects the diversity and composition of functional traits and species. We used data from more than 5000 individuals of 137 bird species captured in 57 sites in the Brazilian Atlantic Forest, a highly endangered biodiversity hotspot. Results indicate that habitat loss leads to a decrease in functional integrity while measures of functional diversity remain unchanged or are even positively affected. Changes to functional integrity were caused by (i) a decrease in the provisioning of some functions, and an increase in others; (ii) strong within-guild species turnover; and (iii) a replacement of specialists by generalists. Hence, communities from more deforested sites seem to provide different but not fewer functions. We show the importance of investigating changes to both diversity and composition of functional traits and species, as the effects of habitat loss on ecosystem functioning may be more complex than previously thought. Crucially, when only functional diversity is assessed, important changes to ecological functions may remain undetected and negative effects of habitat loss underestimated, thereby imperiling the application of effective conservation actions.