Diminished chords function - when to use them

As mentioned earlier, occurences of the diminished triad are often extended to

half diminished or diminished 7th chords, because they sound more... interesting.
Essentially, you're playing the diminished triad in both those variations anyway,
so they're just a meatier, more colourful version of the triad.

So, whenever there is an occurence of a diminished chord then you should try
both m7b5 (half diminished) or dim7 and go with the one that sounds best to
you.

Let's look at some typical uses of the chord.

Leading tone (vii) diminished chord
In major keys, a half diminished chord naturally occurs on the 7th degree (called
the leading tone or vii). In plain English that means whatever the major tonic (I)
chord is, the diminished chord naturally sits one semitone/fret down from that.

It's called a "leading tone" or "leading chord" because it naturally resolves or
"leads" to the tonic. You can hear an example here. See the table below for a
breakdown...

Key / Tonic Chord Lead tone chord Examples
C major Bdim
F / Bdim / C
Dm / Bdim / C
Am / Bdim / C
C# major Cdim
F# / Cdim / C#
Ebm / Cdim / C#
Bbm / Cdim / C#
D major C#dim
G / C#dim / D
Em / C#dim / D
Bm / C#dim / D

That's just a few examples. You should be able to see this same leading tone
chord - tonic relationship no matter what key you're in.

In minor keys, and especially minor keys based around harmonic minor, a
diminished 7th chord is the natural leading tone chord (click to hear example).

Key / Tonic Chord Lead tone chord Examples
C minor Bdim7 F / Bdim7 / Cm
C# minor Cdim7 F# / Cdim7 / C#m
D minor C#dim7 G / C#dim7 / Dm
Altered iii chord
In major key progressions, the iii chord (naturally minor) is sometimes replaced
with a half diminished iii. You'll hear this most commonly used in jazz. For
example...

Cmaj7 - Dm7 - Em7b5 - A7 - Dm7 - G7 - Cmaj7 - click to hear

It's also used in jazz to extend the ii V I (2 5 1) turnaround as follows...

Dm7 - G7 - Em7b5 - Aaug7 - Dm7 - G7 - Cmaj7 - click to hear

You can hear how the tension in that half diminished iii chord is transferred to the
augmented 7th chord before the naturalii V I resolution.

Altered ii chord
Half diminished chords are also often used as the ii chord of major and minor key
progressions before the V chord. Take a listen...

Minor key: Am - Bm7b5 - E7 - Am - click to hear

Major key: C - Dm7b5 - G7 - C - click to hear

We can also use a dim7 chord on the same ii chord root in place of the V chord...

Am - Bm7b5 - Bdim7 - Am - click to hear

Parallel altered chord
A diminished 7th chord can resolve to a chord with the same root (known as a
parallel chord change). For example, if the tonic was E major...

E major - Edim7 - E major - click to hear

You could also do the same with a minor tonic.

What this does is destabilise the tonic for added interest.

Plugging whole step interval gaps
Essentially, you can fill any whole step interval between two chords in a scale
with a diminished 7th chord.

For example, the major diatonic scale is as follows...




We can literally plug those whole step (W) gaps between the 1 and 2 chords, 2
and 3 chords, 4 and 5 chords, and 5 and 6 chords with a dim7. We can now
visualize the scale as follows...



If we were playing in the key of C, some examples of the above technique would
be as follows...

C - Em - F - F#dim7 - C - G - Fm - C - click to hear

C - C#dim7 - Dm7 - G7 - C - click to hear

C - Ebdim7 - Dm7 - G - C - click to hear

C - G - Abdim7 - Am - F - G - C - click to hear

Those are pretty simple progressions, but using that diminished 7th "plugging"
technique adds some spice and unpredictability.

You can also do the same with minor key progressions or any progression that
uses whole steps.