Livestock performance is a critical indicator of grassland production systems and is influenced strongly by precipitation and stocking rates. However, these relationships require further investigation in the arid Desert Steppe region of northeastern China. We employed a randomized complete block design with three replications and four grazing treatments (nongrazed exclosure [Control]), lightly grazed [LG], moderately grazed [MG], and heavily grazed [HG]) by sheep in a continuously grazed system (June to November), to test the effect of stocking rate on sheep performance. The planned stocking rates were 0, 0.15, 0.30, and 0.45 sheep · ha⁻¹ · mo⁻¹, for the control, LG, MG, and HG treatments, respectively. However, actual stocking rates were calculated for each paddock in each year based on a 50-kg sheep equivalent (SE). Annual net primary production (ANPP) was determined at peak standing crop in August 2004 to 2008. Live weight gain was determined for the summer and fall periods, as well as the total grazing period, in each year. ANPP decreased with increasing stocking rate, and daily live weight gain per head decreased linearly with increasing stocking rates over the total grazing period but in a quadratic manner over the summer period with a plateau at the lower rates. Maximum sheep production per unit area over the total grazing season occurred at about 2 SE ha⁻¹ for about a 5-mo grazing period, but individual gains per sheep were predicted to decline after about 1 SE ha⁻¹ presumably because of forage limitations. However, in order to achieve stable annual production, we recommend that the Desert Steppe be grazed at about 0.77 SE ha⁻¹ for a 5-mo period (0.15 SE ha⁻¹ · mo⁻¹). This estimate is based on published grazing strategies that consider an average ANPP with a recommended utilization rate of 30%.