Alpine wetland ecosystems are of importance in water conservation and animal husbandry in the arid central Asian. However, there is limited research on their formation and relationship with climate. In this study, we evaluated the long-term interactions of vegetation, hydrology, and climate based on multiple proxies (lithology, grain size, loss-on-ignition (LOI) at 550 °C, and pollen) obtained from a sediment core (BY10A) from Lake Swan, an alpine lake in the central Tianshan Mountains of northwest China (2541 m a.s.l.). Our records show that Holocene sediment facies change considerably within core BY10A, with the succession from bottom to top comprising fluvial, peat, and lake sediments. The fluvial deposits were characterized by coarser sediment, which was probably reworked from extensive sand dunes developed over the basin during the early Holocene (12.0–7.5 cal kyr BP). Regional biological productivity was low at this time as indicated by the low LOI value, and the remains of vegetation was degraded under the dry climate. A warm and wet climate prevailed from 7.5 to 2.0 cal kyr BP, resulting in the establishment of peat. The ability of the peat surface to efficiently trap fine particles was enhanced when regional sand dune bodies (coarser part) became largely stabilized by vegetation growth in response to increases in moisture availability. After 2.0 cal kyr BP, a rise in water level, leading to the formation of Lake Swan, indicated a further shift to a wetter climate. During this interval, there was an increasing influence of lacustrine settling and/or wave action on the grain size distribution and the pollen assemblage. This study indicates a stepwise wetting trend from the early to late Holocene. Findings show that changes in moisture, regulated by the prevailing westerlies, exerted a significant influence on the evolution of vegetation communities and lake level in our study area.