The landscape of Mengsong, southwest China, was biologically diverse until recently due to historical biogeographical processes overlain by the swidden-cultivation practices of the Hani who migrated there several centuries ago. Our research sought to understand how the Hani adjusted their livelihoods to new policies, markets, and technologies, and the consequences for biodiversity conservation. We combined landscape, plot, and household surveys, interviews, and reviews of secondary documents, to reconstruct the major changes and responses to challenges in the social–ecological system over previous decades. Significant changes from closed to open canopy of secondary-forest vegetation took place between 1965–1993 and from open-canopy to closed-canopy forest between 1993–2006, mostly explainable by changes in state land-use policies and the market economy. Most remaining swidden-fallow succession had been converted into tea or rubber plantations. Swidden-fallow fields used to contain significant levels of biological diversity. Until 2000, biodiversity served several important ecological and social functions in the Hani livelihood system. Indigenous institutions were often functional, for example, linked to fire control, soil management, and watershed protection. For centuries, the Hani had detailed knowledge of the landscape, helping them to adjust rapidly to ecological disturbances and changes in production demands. The Hani understood succession processes that enabled them to carry out long-term land-management strategies. Recent government policies and market dynamics have simplified livelihoods and landscapes, seriously reducing biodiversity, but greatly increasing the area of closed-canopy forest (including plantations) and undermining the usefulness of Hani knowledge and land-use institutions. Meeting both conservation and development objectives in this landscape will require new functional links between sustainable livelihoods, culture, and biodiversity, rather than seeking to recreate the past.