Dairy production is becoming more industrialized globally, especially in developing countries. The large amount of animal wastes from industrial feedlots cannot be fully used on nearby farmlands, leading to severe environmental problems. Using China as a case study, we found that most dairy feedlots employ a semicoupled mode that only recycles solid manure to farmlands, and only a few dairy feedlots employ a fully coupled mode that recycles both solid and liquid animal manure. To produce 1 ton of milk, the fully coupled mode could reduce greenhouse gas (including carbon dioxide, methane, and nitrous oxide in this paper) emissions by 24%, ammonia emissions by 14%, and N discharge into water by 29%, compared with the semicoupled systems. Coupling feedlots with constructed wetlands can further result in greater mitigation of N leaching into groundwater. However, the fully coupled system has not been widely used due to the low benefit to farmers and the institutional barrier that the feedlot owners have no right to use adjacent farmlands. Since a fully coupled system improves net ecosystem services that favor the public, a policy that supports removing the economic and institutional barriers is necessary. Our approach provides a template for mitigating environmental impacts from livestock production without sacrificing milk production.