Bud banks are considered a crucial factor in regulating the species composition of grassland communities and maintaining the ecological function of alpine grasslands. However, few studies have paid attention to the dynamic changes of bud banks from undisturbed to severely degraded alpine meadows. Therefore, this study examined the correlations between plant diversity and bud bank traits at different stages of alpine meadows degradation. Grass biomasses and plant diversity were found to be highest in moderately degraded meadows, and sedge biomasses were highest in lightly degraded meadows. Lack of disturbance and moderate disturbance by herbivores increased the bud bank density of alpine meadows. Consistent with the changes in bud bank density, bud bank diversity was highest in undisturbed meadows. The structural equation model indicated that the densities of rhizome and the densities and diversities of tiller buds play crucial roles in facilitating the greater diversity of the plant community. Our findings suggest that the diversities and densities of rhizome and tiller buds in the degradation stages are synchronized with changes in plant diversity, and in the regenerative ability of bud banks, which largely determine the outcome of restoration in degraded meadows. These findings could provide a frame of reference for effectively restoring degraded alpine regions by regenerating bud banks. The potential driving force and renewal capacity of bud banks should be taken into account in restoring the Qinghai-Tibet Plateau’s degraded meadow.