Abstract: Grassland is one of China’s most significant land resources and as such it directly affects the country’s economic development and ecological sustainability. The appropriate development of grass-based industry is an important way to maintain environmental safety, promote the structural adjustment of agriculture and increase farmers’ income. In this paper, grass-based industry is considered according to its developmental status, with the industry accordingly divided into a series of three linked parts: prenatal, production and postnatal. Grass-based industries have great potential to further develop the linkages between these three developmental stages. Based on the principle of the harmonious development of economic and environmental factors, grass production methods and management models must be changed as soon as possible to realize this potential. Government and enterprises should cooperate with each other to improve the markets for grass-based products. Learning from the experience of more developed countries, China should establish a grass-based industry code in the classification of national economic activities. Furthermore, improved legislation is needed to determine the ownership of grasslands and to regulate the industry they support.