Community assembly history is increasingly recognized as a fundamental determinant of community structure. However, little is known as to how assembly history may affect ecosystem functioning via its effect on community structure. Using wood-decaying fungi as a model system, we provide experimental evidence that large differences in ecosystem functioning can be caused by small differences in species immigration history during community assembly. Direct manipulation of early immigration history resulted in three-fold differences in fungal species richness and composition and, as a consequence, differences of the same magnitude in the rate of decomposition and carbon release from wood. These effects - which were attributable to the history-dependent outcome of competitive and facilitative interactions - were significant across a range of nitrogen availabilities observed in natural forests. Our results highlight the importance of considering assembly history in explaining ecosystem functioning.