Urbanization has been shown to cause biodiversity loss. However, its effects on butterfly taxonomic and functional diversity still need to be studied, especially in urban waterfront green spaces where mechanisms of impact still need to be explored. We used butterflies as indicators to study how urbanization affects their taxonomic and functional diversity and identify indicator species in different urban ecological gradient areas. From July to September 2022, we surveyed 10 urban waterfront green spaces in Fuzhou City, China. We recorded 1163 butterflies of 28 species from 6 families. First, we explored the effects of urbanization on butterfly communities and made pairwise comparisons of different urban ecological gradients (α-diversity); secondly, we looked for differences between butterfly communities across urban ecological gradients (β-diversity); finally, we investigated differences in the response of butterfly functional groups to different urban ecological gradient areas and identified ecological indicative species. This study found the following: (1) Urbanization has led to the simplification of butterfly community structure, but there are also favorable factors that support the survival of individual butterflies; (2) Urbanization has led to significant differences in butterfly communities and plant-feeding polyphagous butterfly groups; (3) Urbanization has led to differences in the functional diversity of butterfly diet and activity space groups; (4) We identified five eco-indicator species in different urban ecological gradients.