A field experimental study of wave energy dissipation is presented. The experiment was conducted at Lake George, Australia and allowed simultaneous measurements of the source functions in a broad range of conditions, including extreme wind-wave circumstances. Results revealed new physical mechanisms in the processes of spectral dissipation of wave energy, which are presently not accounted for in wave forecast models. The spectral dissipation was measured for the first time. Frequency distributions both for the wave breaking probability and breaking severity were obtained. The breaking of waves at a particular frequency was demonstrated to cause energy damping in a broad spectral band above that frequency, and thus causes a cumulative dissipative effect for waves of smaller scales. At the small scales (high frequencies), this cumulative dissipation appears to dominate compared to inherent wave-breaking dissipation. It was found that at moderate winds the dissipation is fully determined by the wave spectrum whereas at strong winds it is also a function of the wind speed. This result indicates that at extreme wind-forcing conditions a significant part of the extra energy flux is dissipated locally rather than being available for enhancing the wave growth. The new spectral dissipation function also accommodates the threshold wavebreaking behaviour discovered earlier. The dissipation term is parameterised and the new parameterisation is presented in a form suitable for spectral wave models.