Herder households' response is critical in determining the effectiveness of payments for grassland ecosystem services (PGES). This study aimed to comprehensively analyze the influencing factors and processes of herder households' response to PGES using the sustainable livelihood approach. Here, we were the first to classify the ways herder households respond to PGES from the perspective of livelihood strategies, and proposed a sustainable livelihood indicator framework applicable to herder household research. According to the framework, we combined path analysis and statistical analysis to carry out empirical analysis in a typical area. The results show that the response strategies could be divided into three types, which rated by popularity from low to high, were reduction in herd counts (19.1%), livelihood diversification (27.7%) and industrial upgrading (53.1% max). Their formation was influenced by various factors, such as the PGES, vulnerability context, livelihood assets, and livelihood outcomes. In general, strict supervision (influence coefficient 0.46) helped reduce livestock headcounts, especially in small and medium households, which used to be the main bodies of overloading. Households with rising living standards tended to explore off‐farm livelihoods, but there were also some households that did so because of disagreement with PGES. Households with higher vulnerability and higher livelihood assets tended to cope with the shortage of grassland through industrial upgrading, thereby achieving a balanced utilization of grassland resources. This study not only makes an important supplement to PGES and sustainable livelihood theory but also provides an important reference for grassland ecological protection practices around the world.