Accurate detection and quantification of vegetation dynamics and drivers of observed climatic and anthropogenic change in space and time is fundamental for our understanding of the atmosphere–biosphere interactions at local and global scales. This case study examined the coupled spatial patterns of vegetation dynamics and climatic variabilities during the past three decades in the Upper Heihe River Basin (UHRB), a complex multiple use watershed in arid northwestern China. We apply empirical orthogonal function (EOF) and singular value decomposition (SVD) analysis to isolate and identify the spatial patterns of satellite-derived leaf area index (LAI) and their close relationship with the variability of an aridity index (AI = Precipitation/Potential Evapotranspiration). Results show that UHRB has become increasingly warm and wet during the past three decades. In general, the rise of air temperature and precipitation had a positive impact on mean LAI at the annual scale. At the monthly scale, LAI variations had a lagged response to climate. Two major coupled spatial change patterns explained 29% and 41% of the LAI dynamics during 1983–2000 and 2001–2010, respectively. The strongest connections between climate and LAI were found in the southwest part of the basin prior to 2000, but they shifted towards the north central area afterwards, suggesting that the sensitivity of LAI to climate varied over time, and that human disturbances might play an important role in altering LAI patterns. At the basin level, the positive effects of regional climate warming and precipitation increase as well as local ecological restoration efforts overwhelmed the negative effects of overgrazing. The study results offer insights about the coupled effects of climatic variability and grazing on ecosystem structure and functions at a watershed scale. Findings from this study are useful for land managers and policy makers to make better decisions in response to climate change in the study region.