Due to land exploitation 18% of mangrove forests in Kenya have suffered from deforestation at an average rate of 1% yr−1 in less than 25 years, directing attention towards the quantification of forest loss. The extent to which degraded mangrove areas occur worldwide and the consequences of mangrove degradation to ecosystem processes have not sufficiently been quantified. Here, network of fifty 10x10m sample plots in mangrove forests of Gazi Bay and Vanga Bay of southern Kenya were established, to study the effects of mangrove degradation upon changes in mangrove biogenic structure, and the provisioning of benthic epifaunal taxonomical and functional biodiversity, species abundance, community and trophic composition, as proxies for ecosystem functioning. A combination between principal component analysis (PCA) and generalized linear models (GLMM) were used to detect canopy cover as the best indicator to define forest degradation. Univariate GLMM models were also used to understand the response of benthic fauna to habitat degradation. Spatial differences in macrofauna abundance and taxonomic diversity were related to the thinning of the canopy cover. Forest degradation also revealed a reduction in crab functional diversity (FD) with high levels of FD recorded at around 50% of canopy cover, supporting the intermediate disturbance hypothesis (IDH). Habitat homogenization (reduction in biogenic structures) associated with degradation had effects on faunal community structure and composition. For instance, degraded habitats had more generalist species, such as detritivores (e.g. Uca annulipes), and a loss of specialists such as foli-detritivores crabs (e.g. Chiromantess eulimene). The results of this study showed the importance of mangrove canopy in structuring and providing a viable habitat to mangrove epifauna, thereby supporting a stable and functional ecosystem. The study shows current trends of mangrove degradation in South-East Kenya threaten faunal diversity and forest ecosystem functioning. The alteration of faunal trophic composition in mangroves could have negative feedbacks to down-stream systems, such as coral reefs, through the reduction of food source for secondary consumers such as fish and shrimp, which visit mangroves on the tide to feed on prey.