Metagenomic and traditional paleolimnological approaches are suitable to infer past biological and environmental changes, however, they are often applied independently, especially in tropical regions. We combined both approaches to investigate Holocene Prokaryote and Eukaryote diversity and microbial metabolic pathways in ancient Lake Chalco, Mexico. Here, we report on diversity among a large number of lineages (36,722 OTUs) and functional diversity (27,636,243 non-clustered predicted proteins, and 6,144 annotated protein-family genes). The most abundant domain is Bacteria (81%), followed by Archaea (15%) and Eukarya (3%). We also determined the diversity of protein families and their relationship to metabolic pathways. The early Holocene (> 11,000 cal years BP) lake was characterized by cool, freshwater conditions, which later became warmer and hyposaline (11,000-6,000 cal years BP). We found high abundances of cyanobacteria, and fungi groups associated with mature forests in these sediments. Bacteria and Archaea include mainly anaerobes and extremophiles that are involved in the sulfur, nitrogen, and carbon cycles. We found evidence for early human impacts, including landscape modifications and lake eutrophication, which began ~ 6,000 cal years BP. Subsaline, temperate conditions were inferred for the past 5,000 years. Finally, we found nitrogen-fixing bacteria and protein-family genes that are linked to contaminated environments, as well as several fungal pathogens of crops in near-surface sediments.