The natural regional vegetation and soil quality in the semi-arid Loess Plateau of China have seriously degraded due to over-grazing and frequent reclamation of natural grassland. Transformation of natural vegetation to farmlands and repeated reclamation of wasteland results in water loss, soil erosion and land degradation. To restore natural vegetation and soil quality, we have to find a way to meet food demand by increasing productivity in the small portion of more fertile lands so as to reduce the pressure on the vast but infertile lands in the region. The key step of increasing grain yield per unit area in semi-arid zones is to improve field environmental conditions, including soil moisture supply, topsoil temperature and soil nutrient level. We have accomplished this through the combination of rainwater-harvesting technology with plastic film mulching and fertilizer application, and demonstrated to increase water use efficiency by at least 40% and the unit grain yield twice or more. Based on these technologies, we propose an approach of water-harvesting ecological agriculture (RHEA) and associated landscape configuration. Under the RHEA, unit yield of grain and cash crops can be increased greatly through rainwater harvesting technology in the field, and the watered cropland can be interspersed with improved pastures and restored natural vegetation in a continuous landscape (e.g. a typical hill). Various types of grasslands will replace cropland in a large proportion of the landscape; animal feeding will be mainly dependent upon pen feeding in order to decrease grazing pressure. These strategies will help maintain the agroecological sustainability and meet the industrial planning in the region. In summary, RHEA is an innovative approach for the regional dryland farming development and can lead to significant improvement for the grain productivity, restoration of degraded ecosystems and regional sustainable development in the semi-arid Loess Plateau of China.