Analyzing the interaction between environmental policies and farmers’ responses to them is an important dimension to understand regional agro-ecosystem sustainability. We examine land-use outcomes of perhaps the largest government-planned rural reforestation program in the history of humankind, China’s “Grain for Green” (GFG) policy from 1999 to 2006. Specifically, we simulate household responses to the GFG policy in Western China’s Shaanxi Province, a region experiencing acute climate and land change-related environmental degradation. We develop a “farmer group decision-making model” to simulate the probability of land-use change. Elevation, slope, and farm household characteristics emerge as key factors influencing farmers’ land-use decisions and subsequent land-use patterns. Land reversion and abandonment in the study area have been significantly affected by the GFG program. Policy recommendations suggest potential avenues to enhance the effectiveness of the GFG program and to improve the efficient use of under-used farmland. Results may help inform the Chinese government as it crafts policy guiding a coupled rural migration and reforestation program of unprecedented scale.