The potential benefits of biofuels depend on the environmental impacts of biomass production. High-diversity mixtures of grassland species grown on abandoned agricultural lands have been proposed as enhancing climate mitigation potential, but can have low yields. Intensification might increase productivity, but might also cause negative environmental impacts. Here, we show that, compared with more intensive treatments, moderate intensification of high-diversity grasslands had as great or greater biomass yields, soil carbon stores and root mass, and had negligible effects on grassland stability, diversity and nitrate leaching. In particular, compared with untreated plots, the moderate treatment of irrigation and addition of 70 kgN ha−1 yr−1 resulted in 89% more yield, 61% more root carbon, 187% more soil carbon storage and, if biomass were used for bioenergy, twice the greenhouse gas reductions. Irrigation and 140 kgN ha−1 yr−1 had 32% lower greenhouse gas benefits, 10 times greater nitrate leaching and 121% greater loss of plant diversity than the moderate treatment. These results suggest that optimizing multiple environmental benefits requires sustainable intensification practices appropriate for the soils, climate and plant species of a region.