The Three-Rivers Headwaters Region (TRHR) is crucial to the sustainable development of China and Southeast Asian countries. For various reasons, the sustainability of grassland ecosystems in the region has been seriously challenged. This paper reviews remote sensing-based monitoring and simulation of TRHR grassland ecosystems; quantitative assessment of grassland degradation and its ecological effects; driving factors and mechanisms of grassland degradation; grassland conservation policies and restoration for degraded grassland. The review shows that although TRHR alpine grassland coverage and above-ground biomass of alpine grassland (AG-AGB) have generally increased over the past 30 years, the degradation has not been fundamentally curbed. Grassland degradation significantly reduced the surface soil nutrients and affected their distribution, and also aggravated soil erosion and deteriorated soil moisture conditions. Grassland degradation leads to loss of productivity and species diversity. Its adverse impact on production will reduce the well-being of pastoralists. The “warm and wet” trend of the TRHR climate promotes the restoration of alpine grasslands, but the widespread overgrazing is considered to be the main reason for grassland degradation. However, the two have very complex impacts on grassland, and further research is needed. Since 2000, the TRHR grassland restoration policy has achieved great results, but the formulation of the policy still needs to effectively integrate the market logic and strengthen the understanding of the relationship between ecological protection and cultural protection. In addition, appropriate human intervention mechanisms are urgently needed for the uncertainty of future climate change. It is recommended to implement technologies such as rodent control, light grazing, enclosure, weeding, and fertilization to restore slightly and moderately degraded grasslands. However, for the severely degraded “black soil beach”, it needs to be restored by artificial seeding, and the stability of the plant-soil system needs to be emphasized to establish a relatively stable community to prevent secondary degradation.