The widespread destruction and fragmentation of natural habitats around the world creates a strong incentive to understand how species and communities respond to such pressures. The vast majority of research into habitat fragmentation has focused solely on species presence or absence. However, analyses using innovative functional methodologies offer the prospect of providing new insights into the key questions surrounding community structure in fragmented systems. A key topic in fragmentation research is nestedness (i.e. the ordered composition of species assemblages involving a significant tendency for packing of the presence–absence matrix into a series of proper subsets). To date, nestedness analyses have been concerned solely with nestedness of species membership. Here, we capitalize on the publication of a recent nestedness index (traitNODF) in which the branch lengths of functional dendrograms are incorporated into the standard NODF nestedness index. Using bird community data from 18 forest-habitat-island studies, and measurements of eight continuous functional traits from over 1000 bird species, we conduct the first synthetic analysis of nestedness from a functional perspective (i.e. a nestedness analysis which incorporates how similar species are in terms of their ecological traits). We use two null models to test the significance of any observed functional nestedness, and investigate the role of habitat island area in driving functional nestedness. We also determine whether functional nestedness is driven primarily by species composition or by differences in species’ traits. We found that the majority (94%) of datasets were functionally nested by island area when a permutation null model was used, although only 11–22% of datasets were significantly functionally nested when a more conservative fixed-fixed null model was used. Species composition was always the most important driver of functional nestedness, but the effect of differences in species traits was occasionally quite large. Our results isolate the importance of island area in driving functional nestedness where it does occur and show that habitat loss results in the ordered loss of functional traits. This analysis demonstrates the potential insights that may derive from testing for ordered patterns of functional diversity.