The grassland steppe of Inner Mongolia is traditionally used for sheep grazing. However, overgrazing reduced vegetation cover in winter, thereby increasing soil erosion and consequently, degradation of the steppe vegetation. Grazing intensity (GI) is still the most important factor in pasture management. Hence, the aim of the current study was to evaluate the effect of GI on grassland and sheep performance. A grazing experiment was conducted from July until September in 2005, 2006 and 2007 in which six different GI ranging from very light (GI 1), light (GI 2), light-moderate (GI 3), moderate (GI 4) and heavy (GI 5) to very heavy (GI 6) were tested. Each GI treatment comprised two adjacent plots that were alternately used for grazing or hay-making each year. Variables measured included herbage mass (HM) and chemical composition, digestibility of ingested organic matter (dOM), organic matter intake (OMI) and live weight gain (LWG) of sheep. The HM decreased significantly with increasing GI from 1·01 t (GI 1) to 0·45 t dry matter (DM)/ha (GI 6). There were only minor effects of GI on chemical composition and digestibility of standing herbage. Moreover, dOM, OMI and hence, digestible OMI did not differ between GI. Across all study years, LWG of sheep was not influenced by GI so that LWG per hectare increased with increasing GI, reaching a maximum of 730 g/d at GI 6 compared with 181 g/d at GI 1. However, a strong decrease in LWG per sheep with increasing stocking rate was found in 2005 when annual rainfall was less than half of the long-term average, resulting in a similar LWG per hectare across the range of tested stocking rates. The results therefore show that intensive grazing does not reduce growth of individual animals in most years, but increases LWG per unit of land area and thus, income of farmers. The alternating use of pastures for grazing or hay-making might have mitigated the negative effects of heavy grazing on herbage and animal performance. Nevertheless, high GI may negatively affect grassland productivity in the long term and the lack of HM on offer on heavy grazed pastures in dry years will require supplement feeding at the end of the vegetation period or the untimely sale of animals.