The Qehan Lake Basin is located in the north of the Otindag Sandy Land, where the fragile eco-environment is sensitive to climate change and human activity. We analyzed land cover change and the concomitant processes of ecological change based on multi-spectral scanning (MSS), thematic mapper (TM), and enhanced TM (ETM+) images. The results showed that from 1977 to 2000, the area of dune sand increased significantly by 840.2km2, while the area of high cover grassland (HCGL), medium cover grassland (MCGL), and low cover grassland (LCGL) reduced by 140.6, 207.3, and 463.3km2, respectively. Additionally, the area of wetland decreased by 112.9km2. During the period of 1977 to 2000, the land cover condition index (LCCI) reached a low of 27.7, which indicated serious eco-environmental challenges in the Qehan Lake watershed. However, the process of desertification was reversed, and vegetation cover was gradually restored after 2000. From 2000 to 2013, the area of LCGL increased by 369.2km2 (13.4%), while the area of dune sand decreased by 560.1km2 (29.4%). The LCCI improved to reach 29.18 in 2013, demonstrating a significant eco-environmental improvement. Although climate change, human activity, and ecological policies have together determined the scope and extent of desertification in the watershed, the most fundamental factor in the restoration of vegetation was precipitation.