AbstractNeglecting the naturally existing functional diversity of communities and the resulting potential to respond to altered conditions may strongly reduce the realism and predictive power of ecological models. We therefore propose and study a predator-prey model that describes mutual feedback via species shifts in both predator and prey, using a dynamic trait approach. Species compositions of the two trophic levels were described by mean functional traits—prey edibility and predator food-selectivity—and functional diversities by the variances. Altered edibility triggered shifts in food-selectivity so that consumers continuously respond to the present prey composition, and vice versa. This trait-mediated feedback mechanism resulted in a complex dynamic behavior with ongoing oscillations in the mean trait values, reflecting continuous reorganization of the trophic levels. The feedback was only possible if sufficient functional diversity was present in both trophic levels. Functional diversity was internally maintained on the prey level as no niche existed in our system, which was ideal under any composition of the predator level due to the trade-offs between edibility, growth and carrying capacity. The predators were only subject to one trade-off between food-selectivity and grazing ability and in the absence of immigration, one predator type became abundant, i.e., functional diversity declined to zero. In the lack of functional diversity the system showed the same dynamics as conventional models of predator-prey interactions ignoring the potential for shifts in species composition. This way, our study identified the crucial role of trade-offs and their shape in physiological and ecological traits for preserving diversity.