Conflicts pervade IT project teams and can be detrimental to team performance. Team diversity affects conflicts and team performance but its role is ambivalent. The moderating role of functional background diversity (FBD) on conflicts and team performance is explored via a hierarchical linear modelling analysis of 200 participants from 41 cross-functional IT project teams. Results corroborate the complexity of relationships between diversity, conflict, and performance by showing that the effect of FBD is contingent on the type of conflicts: FBD does not heighten the adverse effect of relationship conflicts on team performance, but it does amplify the detrimental effect of task conflicts. The study provides evidence that diversity attributes can play a moderating rather than a direct or mediating role on team performance. Moreover, the study’s systematic and combined application of several conceptual and methodological recommendations addresses limitations of past studies and underscores the importance of adopting a more nuanced and rigorous approach to examining diversity in teams.