Abstract: Based on the annual data from 1981 to 2013 of Xilinguole, Inner Mongolia, this paper conducted a systematic review of the history of the institutional change of the grassland, analyzed the evolution of the grassland degradation, and explored the internal relations of the grassland degradation and property right institutions and policies in Xilinguole since Inner Mongolia initiated economic reform and opening up policies. Main results show that: 1) From 1978 to 2000, the livestock number continued to increase and ranchers’ income also increased significantly, but the grassland degradation area rose and the quality of forage declined because of ownership conflict of grassland and livestock cattle and the inconsistent contract time; 2) From 2000 to 2010, degradation area was reduced and the decreasing trend was reversed. However there were some challenges because of the limitations of determination of ‘grassland-livestock balance’ and low grazing-restriction subsidies; and 3) since 2011, the whole trend of grassland degradation had been under control, and the increasing degradation trend has been reversed. But the Grassland Ecological Protection Subsidy and Reward System had the defects in that prohibited grading period is too short and subsidy policy is lack of flexibility. The study also confirmed the strong correlation between the grassland degradation and grassland institutions and polices. Based on the findings of this research, we provide the following suggestions:1) formulating the long-term contracting system of livestock; 2) establishing ‘grassland-livestock balance’ system based on the best grassland ecosystem function; 3) implementing long-term ecological compensation system; 4) increasing the ecological subsidies and establishing dynamic and market-oriented subsidies; and 5) improving the supervision and management of grassland policies.