Overgrazing, grassland degradation, and soil erosion are significant problems in mountain semiarid ecosystems of the Central Caucasus. Semiarid highland grasslands mainly occur on southern slopes with shallow soils covering a rocky impermeable layer. These ecosystems experience more drought than the grasslands on the northern slopes, and like other drylands, they are especially prone to climate change and desertification. Year-round overgrazing in rural semiarid pastures, as a result of the increase in livestock on private farms at the turn of the 20th and 21st century, also contributed to landscape xerophytization and soil erosion. The aim was to define vegetation and soil indicators for the stages of grassland degradation to help land managers make decisions on sustainable grassland management. We identified four stages of grassland degradation and calculated the integral degradation index for each stage. Main indicators of grassland degradation were grass height, vegetation coverage, Shannon index, humus content, and soil moisture. These parameters decreased significantly with each stage of grassland degradation. At the stage of extremely degraded grasslands, there was clear evidence of the spread of drier vegetation types to more mesic types with soil erosion and hydrological change. Regulation of stocking rates at each stage of grassland degradation is recommended to maintain and restore the highland semiarid ecosystems of the Central Caucasus.