Encroachment of shrubs into the unique pastoral grassland ecosystems of the Tibetan Plateau has significant impact on ecosystem services, especially forage production. We developed a process-based ecohydrological model to identify the relative importance of the main drivers of shrub encroachment for the alpine meadows within the Qinghai province. Specifically, we explored the effects of summer livestock grazing (intensity and type of livestock) together with the effects of climate warming, including interactions between herbaceous and woody vegetation and feedback loops between soil, water and vegetation. Under current climatic conditions and a traditional herd composition, an increasing grazing intensity above a threshold value of 0.32 ± 0.10 large stock units (LSU) ha−1 day−1 changes the vegetation composition from herbaceous towards a woody and bare soil dominated system. Very high grazing intensity (above 0.8 LSU ha−1 day−1) leads to a complete loss of any vegetation. Under warmer conditions, the vegetation showed a higher resilience against livestock farming. This resilience is enhanced when the herd has a higher browser : grazer ratio. A cooler climate has a shrub encroaching effect, whereas warmer conditions increase the cover of the herbaceous vegetation. This effect was primarily due to season length and an accompanied competitive loss of slower growing shrubs, rather than evaporative water loss leading to less soil water in deeper soil layers for deeper rooting shrubs. If climate warming is driving current shrub encroachment, we conclude it is only indirectly so. It would be manifest by an advancing shrubline and could be regarded as a climatic escape of specific shrub species such as Potentilla fruticosa. Under the recent high intensity of grazing, only herding by more browsing animals can potentially prevent both shrub encroachment and the complete loss of herbaceous vegetation.