Based on the physico-biophysical considerations, mathematical analysis and some approximate formulations generally adopted in meteorology and ecology, an ecological dynamic model of grassland is developed. The model consists of three interactive variables, i.e. the biomass of living grass, the biomass of wilted grass, and the soil wetness. The major biophysical processes are represented in parameterization formulas, and the model parameters can be determined inversely by using the observational climatological and ecological data. Some major parameters are adjusted by this method to fit the data (although incomplete) in the Inner Mongolia grassland, and other secondary parameters are estimated through sensitivity studies. The model results are well agreed with reality, e.g., (i) the maintenance of grassland requires a minimum amount of annual precipitation (approximately 300 mm); (ii) there is a significant relationship between the annual precipitation and the biomass of living grass; and (iii) the overgrazing will eventually result in desertification. A specific emphasis is put on the shading effect of the wilted grass accumulated on the soil surface. It effectively reduces the soil surface temperature and the evaporation, hence benefits the maintenance of grassland and the reduction of water loss in the soil.