Theory suggests that plant interactions at the neighbourhood scale play a fundamental role in regulating biodiversity-productivity relationships (BPRs) in tree communities. However, empirical evidence of this prediction is rare, as little is known about how neighbourhood interactions scale up to influence community BPRs. Here, using a biodiversity-ecosystem functioning experiment, we provide insights into processes underlying BPRs by demonstrating that diversity-mediated interactions among local neighbours are a strong regulator of productivity in species mixtures. Our results show that local neighbourhood interactions explain over half of the variation in observed community productivity along a diversity gradient. Overall, individual tree growth increased with neighbourhood species richness, leading to a positive BPR at the community scale. The importance of local-scale neighbourhood effects for regulating community productivity, however, distinctly increased with increasing community species richness. Preserving tree species diversity at the local neighbourhood scale, thus seems to be a promising way for promoting forest productivity.