Soil erosion in the Three-River Headwaters (TRH) region has continued to intensify in recent decades due to human activities and climate change. To reverse this situation, the Chinese central government has launched the Subsidy and Incentive System for Grassland Conservation (SISGC). As a sign of the effectiveness of SISGC implementation, the dynamic changes of soil erosion can provide timely feedback for decision makers and managers. The Revised Universal Soil Loss Equation (RUSLE) model was used to simulate the spatial distribution of soil erosion before and after SISGC implementation, and Mann–Kendall (MK) test to reveal the effect of policy implementation. The results showed that: (1) the soil erosion in the TRH was mainly mild (83.83% of the total eroded area), and the average soil erosion rate and the total erosion were 13.63 t ha−1 y−1 and 323.58 × 106 t y−1 respectively before SISGC implementation; (2) SISGC implementation has curbed soil erosion. After SISGC implementation, the total soil erosion decreased by 3.80%, which showed obvious differences between grassland types; (3) The influences of SISGC were mainly because it has increased vegetation cover, further decreasing soil erosion. However, soil erosion in Alpine grassland has deteriorated, indicating direct targeted policymaking should be on the agenda. Furthermore, SISGC should be continued and grassland-type-oriented to restore the grassland ecosystem.