Microbial communities in soil mediate biogeochemical processes; however, understanding forces shaping their composition and function remains a gap in our ecological knowledge. We investigated phylogenetic turnover and functional gene composition of saprotrophic fungi along a 4000-year glacial chronosequence. A direct relationship between β-diversity and geographic distance, a proxy for time since deglaciation, indicated that dispersal limitation shapes saprotrophic fungal communities. Further, we infer that dispersal limitation may also influence fungal functional properties as metabolic potential and functional richness increased with site age. Despite attempts to minimize environmental variation, a direct relationship between β-diversity and biogeochemical differences across sites indicated that environmental filtering further shapes fungal community composition. However, environmental filtering was overshadowed by the effect of dispersal limitation when tested by multiple regression. Fungal β-diversity and composition of functional genes involved in plant litter decay were unrelated, suggesting that functional traits are not phylogenetically conserved across this chronosequence. Our study suggests that dispersal limitation operates in structuring present-day fungal community composition and functional potential. Further, we demonstrate the need to integrate functional and phylogenetic approaches to more accurately portray microbial communities and their functional capacities.