Water yield is an ecosystem service that is vital to not only human life, but also sustainable development of the social economy and ecosystem. This study used annual average precipitation, potential evapotranspiration, plant available water content, soil depth, biophysical parameters, Zhang parameter, and land use/land cover (LULC) as input data for the Integrated Valuation of Ecosystem Service Tradeoffs (InVEST) model to estimate the water yield of Shangri-La City from 1974 to 2015. The spatiotemporal variations and associated factors (precipitation, evapotranspiration, LULC, and topographic factors) in water yield ecosystem services were then analyzed. The result showed that: (1) The water yield of Shangri-La City decreases from north and south to the center and showed a temporal trend from 1974 to 2015 of an initial decrease followed by an increase. Areas of higher average water yield were mainly in Hutiaoxia Town, Jinjiang Town, and Shangjiang Township. (2) Areas of importance for water yield in the study area which need to be assigned priority protection were mainly concentrated in the west of Jiantang Town, in central Xiaozhongdian Town, in central Gezan Township, in northwestern Dongwang Township, and in Hutiaoxia Town. (3) Water yield was affected by precipitation, evapotranspiration, vegetation type, and topographic factors. Water yield was positively and negatively correlated with precipitation and potential evapotranspiration, respectively. The average water yield of shrubs exceeded that of meadows and forests. Terrain factors indirectly affected the ecosystem service functions of water yield by affecting precipitation and vegetation types. The model used in this study can provide references for relevant research in similar climatic conditions.