Forest degradation is increasingly recognized as a major threat to global biodiversity and ecosystems’ capacity to provide ecosystem services. This study examined the impacts of forest degradation on soil quality and function in a seasonally dry tropical forest (SDTF) of Ecuador. We compared soil physical-chemical properties, enzymatic activity, particulate organic carbon (POC) and mineral-associated organic carbon (MAOC) along a gradient of SDTF degradation in the dry and rainy season. Our findings showed a consistent and steady reduction in soil quality (total C and N) and function (dehydrogenase and β-glucosidase activity) that paralleled the loss of vegetative structure and diversity along the degradation gradient. Soil physical-chemical properties were less variable and enzymatic activity was generally higher in the dry season compared to the rainy season. We also showed for the first time a significant and uniform decrease in POC and MAOC with ecosystem degradation in a SDTF. The relative proportion of these two components was constant along the gradient except for the most degraded state (arid land), where POC was higher in proportion to MAOC, suggesting that a functional tipping point may be crossed with extreme forest degradation. These findings address an important knowledge gap for SDTFs by showing a consistent loss of soil quality and functionality with degradation and suggest that extreme degradation can result in an alternate state with compromised resilience.