Riverbed terracing has been introduced in ancient times to retain water and soil, to reduce hydrological connectivity and erosion and to increase primary and secondary productivity of agro-ecological systems. These presently abandoned human-made landscapes have become novel ecosystems and a potential source of ecosystem services to humans in drylands. We use a mathematical-modeling approach to study factors that regulate terraced riverbeds and affect community and ecosystem attributes such as productivity, functional diversity and resilience to droughts. We introduce a model that captures the relationships between rainfall pattern, runoff coupling between adjacent terraces, and vegetation growth, taking into account competition for water and light. We found that a large number of weak rainfall events results in lower total biomass and functional diversity across the terraced riverbed compared with a few strong rainfall events. We further analyzed the filtering of species traits from pools of functional groups that make different tradeoffs between investment in above-ground biomass to capture canopy resources and investment in below-ground biomass to capture soil resources. Pools characterized by concave tradeoffs give rise to higher functional diversity, lower biomass production and lower resilience to droughts, as compared with convex pools. New empirical studies are needed to test these model predictions.