Changes in land cover patterns can be analyzed to improve understanding of macroscopic environmental change and impacts on landscape-level processes. However, analysis at only the landscape scale neglects the linkages between land use change and local livelihoods. In this paper we describe both land cover change from 1989–2001 and the resulting household impacts in a small upland watershed in western Yunnan, using remote sensing, spatial analysis, and interviews. Afforestation has substantially reduced farmland area over the past 15 years, affecting both ecological and economic patterns. Landscape fragmentation has decreased, as small scattered patches have been consolidated into larger patches. Household access to arable land has been reduced, total grain production has decreased, and households have become more dependent on cash income. The transition of farmland to non-agricultural, forested land marks a policy-driven shift in land use.