The relationship between livelihood diversification of farm households and cultivated land utilization has become a core re-search topic related to global environmental change. Agro-pastoral ecologically-vulnerable areas face challenges such as insufficient ecosystem conservation, low agricultural production, and weak economies. In this study, 215 farm households from Zhengxiangbai Banner, Taibus Banner, and Duolun County of Inner Mongolia were surveyed. The sustainable livelihoods framework of the United Kingdom (UK) Department for Intational Development (DFID) was used to measure the livelihood capital of these farm households. A one-way analysis of variance (ANOVA) was applied to examine the differences in the livelihood capital of different types households, and a correlation analysis was applied to analyze its impact on cultivated land utilization. Results showed that households with non-farming activities accounted for 64.7％ of the total surveyed households, and non-farming employment was becoming more preva-lent. Physical and financial capital was the driving factors for livelihood diversity. Each livelihood capital had key factors that affected household farmland use behaviors, such as the age of householder, the labor ratio, proportion of income, farmland scale, number of ma-chines, and these had a significantly positive or negative influence on farmland use. Full-time farming households were more likely to transfer the land into cultivation and invest more labor, while non-farming households with high income were likely to transfer farmland out and invest more money to develop efficient farming or improve the employment skills. The results of this study suggest that policy-makers need to fully consider livelihood changes of local households. It is effective to strengthen labor training, create farmland market and improve the efficiency of farmland utilization. We hope to achieve a win-win scenario to improve local economies and ecosystem conservation.