This paper identifies new ways of moving from land degradation towards sustainable land management through the development of economic mechanisms. It identifies new mechanisms to tackle land degradation based on retaining critical levels of natural capital whilst basing livelihoods on a wider range of ecosystem services. This is achieved through a case study analysis of the Kalahari rangelands in southwest Botswana. The paper first describes the socio-economic and ecological characteristics of the Kalahari rangelands and the types of land degradation taking place. It then focuses on bush encroachment as a way of exploring new economic instruments (e.g. Payments for Ecosystem Services) designed to enhance the flow of ecosystem services that support livelihoods in rangeland systems. It does this by evaluating the likely impacts of bush encroachment, one of the key forms of rangeland degradation, on a range of ecosystem services in three land tenure types (private fenced ranches, communal grazing areas and Wildlife Management Areas), before considering options for more sustainable land management in these systems. We argue that with adequate policy support, economic mechanisms could help reorient degraded rangelands towards more sustainable land management.