Patagonia was one of the last regions in the Americas to be settled by Europeans. It was not until the mid-1880s that the Argentine government secured effective control over the region, after which settlement and economic development were based on sheep ranching. Virtually free of domesticated animals in 1885, by 1910 Patagonian rangelands supported some 12 million sheep. This growth was sustained until 1952, when the sheep population of the region peaked at approximately 22 million, but the number of sheep in Patagonia has since declined to about 13 million. Numerous factors have been implicated in the collapse of sheep ranching, one of great significance being the very poor state of Patagonian rangelands. Soil erosion is widespread, and the flora has been so heavily modified that it is extremely difficult, if not impossible, to determine what the composition and characteristics of Patagonia's pre-European vegetation were. This paper reviews the evolution of Patagonia's sheep industry and the nature and extent of environmental degradation caused by livestock. Although researchers have long called for a response to the environmental and socio-economic dimensions of the crisis, only in the past decade have initiatives to assess, monitor, and reverse degradation in Patagonia been launched. These initiatives often promote the diversification of land-use and alternative production strategies. Case study evidence from the upper Percey River watershed in western Chubut province indicates that ranchers may view alternative livelihoods with suspicion. It is suggested that measures to restore and protect Patagonian ecosystems would gain greater acceptance if local producers were seen as equals in the conservation and development process. This could be achieved by replacing more-traditional top-down models of policy design and implementation with measures based on genuine consultation and participatory, community-based approaches to natural resource management.