Changes in structure and functioning of tree communities in response to forest fragmentation may alter tropical forest’s capacity to store carbon and regulate climate. However, evidence for indirect effects of forest fragmentation on above – and belowground carbon pools through changes in forest biodiversity is scarce. Here we focus on understanding the relative importance of taxonomic and functional diversity and tree cover to explain above- and below-ground carbon stocks in coastal dune forest fragments. We surveyed tree species composition and structure in six coastal forest patches varying in size from 215 to 13350 ha, in Kwa-Zulu Natal, South Africa. For each fragment, we estimated carbon stocks of two pools, aboveground biomass (AGC) and soil organic carbon (SOC). We used structural equation models to test if and to what extent the effects of forest fragmentation on AGC and SOC were mediated by tree cover and taxonomic and functional diversity. Our results showed that forest fragmentation directly reduced AGC, but increased SOC. In contrast, forest fragmentation indirectly, through decreasing functional diversity, increased AGC, but decreased SOC. Small patches therefore had few tree species that were functional similar and had high AGC, but low SOC, which led to a negative relationship between species richness and AGC. Tree cover was not affected by fragmentation, and had a direct positive effect on AGC but not on SOC. Our results suggest that forest fragmentation simultaneously affect multiple processes which directly and indirectly affects carbon stocks of different pools. Fragmentation may trigger a process of biotic homogenization, in which a few species are positively related with carbon storage above-, but not below-ground.