Abstract: China’s southwest Karst region is facing challenges from both environmental and poverty problems. Developing production systems that can improve the environmental health and people’s livelihoods is central to sustainable development in the region. As a case study, three household production systems, namely crop system (CS), goat system (GS) and mixed system (MS), were compared and analyzed based on a survey in Qinglong County, Guizhou Province. MS had the highest net household income, followed by GS and then CS, indicating that a change towards agro-grassland farming could improve the livelihoods of the farmers. Changing the eroded sloping lands from crops to perennial pasture resulted in increased vegetation cover, reduced use of chemical fertilizers and zero use of pesticides, building up of soil fertility, and consequently an improvement in water and soil conservation and reduction in environmental pollution. The development of a goat production system in the county, based on cultivated pastures and supported by technical and market services from the Livestock Service Center, explored a promising solution to the environmental and poverty problems in the Karst region of southwest China.