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Abstract AimThe spectral variability hypothesis (SVH) predicts that spectral diversity, defined as the variability of radiation reflected from vegetation, increases with biodiversity. While confirmation of this hypothesis would pave the path for use of remote sensing to monitor biodiversity, support in herbaceous ecosystems is mixed. Methodological aspects related to scale have been the predominant explanation for the mixed support, yet biological characteristics that vary among herbaceous systems may also affect the strength of the relationship. Therefore, we examined the influence of three biological characteristics on the relationship between spectral and taxonomic diversity: vegetation density, spatial species turnover and invasion by non‐native species. We aimed to understand when and why spectral diversity may serve as an indicator of taxonomic diversity and be useful for monitoring. LocationContinental U.S.A. Time PeriodPeak greenness in 2017. Major Taxa StudiedGrassland and herbaceous ecosystems. MethodsFor nine herbaceous sites in the National Ecological Observatory Network, we calculated taxonomic diversity from field surveys of 20 m × 20 m plots and derived spectral diversity for those same plots from airborne hyperspectral imagery with a spatial resolution of 1 m. The strength of the taxonomic diversity–spectral diversity relationship at each site was subsequently assessed against measurements of vegetation density, spatial species turnover and invasion. ResultsWe found a significant relationship between taxonomic and spectral diversity at some, but not all, sites. Spectral diversity was more strongly related to taxonomic diversity in sites with high species turnover and low invasion, but vegetation density had no effect on the relationship. Main ConclusionsUsing spectral diversity as a proxy for taxonomic diversity in grasslands is possible in some circumstances but should not just be assumed based on the SVH. It is important to understand the biological characteristics of a community prior to considering spectral diversity to monitor taxonomic diversity.