A 3-year survey was conducted to explore the relationships among plant composition, productivity, and soil fertility characterizing four different degradation stages of an alpine meadow in the source region of the Yangtze and Yellow Rivers, China. Results showed that plant species diversity, productivity, and soil fertility of the top 30-cm soil layer significantly declined with degradation stages of alpine meadow over the study period. The productivity of forbs significantly increased with degradation stages, and the soil potassium stock was not affected by grassland degradation. The vegetation composition gradually shifted from perennial graminoids (grasses and sedges) to annual forbs along the degradation gradient. The abrupt change of response in plant diversity, plant productivity, and soil nutrients was demonstrated after heavy grassland degradation. Moreover, degradation can indicate plant species diversity and productivity through changing soil fertility. However, the clear relationships are difficult to establish. In conclusion, degradation influenced ecosystem function and services, such as plant species diversity, productivity, and soil carbon and nitrogen stocks. Additionally, both plant species diversity and soil nutrients were important predictors in different degradation stages of alpine meadows. To this end, heavy degradation grade was shown to cause shift of plant community in alpine meadow, which provided an important basis for sustaining ecosystem function, manipulating the vegetation composition of the area and restoring the degraded alpine grassland.