Seeding legumes into degraded grasslands may effectively replace nitrogen fertilization and restore ecosystem stability by retaining or increasing native plant species diversity while increasing forage production. However, previous research indicated limited legume persistence and potential plant community diversity loss following seeding of legumes into grasslands, constraining successful restoration of degraded grasslands. Our research defined optimal management thresholds for successful legume establishment, reconciling both environmental conservation and production priorities. Large areas of degraded steppe in Inner Mongolia, northeast China, were seeded to either native alfalfa (yellow‐flowered alfalfa: Medicago falcata L.), cultivated alfalfa (purple‐flowered alfalfa: Medicago sativa L.), or left nonseeded (control). Within each seeded area, management treatments (P fertilization or mowing) were assigned to plots in the second year of alfalfa establishment. Our results indicated P amendments and mowing improve native alfalfa establishment, increasing plant productivity while maintaining diverse plant communities, thereby successfully rehabilitating degraded meadow steppe grasslands. However, cultivated alfalfa was not persistent under any management treatment. Alfalfa shoot N and P concentration was linearly related to plant‐available P, indicating P fertilization differentially benefits alfalfa compared with the dominate C3 grass, Leymus chinensis (Trin.) Tzvel. Mowing successfully increased plant species diversity and plant species asynchrony; however, mowing did not alter the temporal stability of plant community productivity, potentially maintaining or enhancing ecosystem stability. Our research showed promise that native alfalfa seeding combined with P fertilization and mowing can restore degraded grasslands to support both forage production and diverse plant communities.