Situated at the headwaters of the Yellow River, the sedge-dominated peatlands in the Ruoergai plateau in China store water and supply it to downstream areas. These peatlands are important grazing lands for local pastoralists and play an important role in Tibetan culture. Other uses from the peatland are fuel, medical plants and honey. From 1960 to 1970s the Ruoergai peatlands, which had been drained for agriculture, began to be badly damaged by overgrazing. Assessments and field observations indicate that over 70 percent of the peatlands were severely degraded. As a result, a large amount of CO2 stored in the peat has been released to the atmosphere and biodiversity has been lost. All of these environmental consequences have had an impact on local livelihoods. With support from the Chinese government, the United Nations Environment Programme (UNEP) and the European Union (EU), the following activities were tested and demonstrated on 4 733 ha of peatland. These activities can be replicated to restore other peatlands with similar conditions.