Areas of grassland improvement and degradation were mapped and assessed to identify the driving forces of change in vegetation cover in the Three Rivers headwater region of Qinghai, China. Based on linear regression at the pixel level, we analyzed the vegetation dynamics of the grasslands of this region using MODIS NDVI data sets from 2000 to 2010. Correlation coefficients were computed to quantitatively characterize the long-term interrelationship between vegetation NDVI and precipitation/temperature variability during this period. The use of time series residuals of the NDVI/precipitation linear regression to normalize the effect of precipitation on vegetation productivity and to identify long-term degradation was extended to the local scale. Results showed that significant improvements occurred in 26.4% of the grassland area in the Three Rivers Headwater region between 2000 and 2010. The study area, which represents about 86.4% of the total grassland area of this headwater region, showed a general trend of improvement with no obvious trend of degradation.