The contradiction between urban expansion and ecological protection in fragile vegetation areas has become increasingly prominent with regional development. Revealing the relationship between urbanization and ecosystem services will help to provide solutions to this problem. In order to clarify the impact of urbanization on typical mountain areas with fragile vegetation on the Qinghai Tibet Plateau, we built an ecosystem service value (ESV) evaluation index system. We also evaluated the ESV and its spatial response to the urbanization of Shannan Prefecture in Tibet from 1990 to 2015 based on different terrain gradients (TGs) using vegetation biophysical data obtained from remote sensing platforms. The results show that ESV in Shannan increased first and then declined as the TG increased, reaching a maximum value at the third TG. ESV showed a decreased trend during the study period, with a significant decline at the second and third TGs, which were the main distribution areas of vegetation in Shannan. Through spatial correlation analysis, we observed that urbanization and ESV showed a significant spatial aggregation effect. Among them, the high–low type accounted for the largest proportion in the grid with the agglomeration effect, mainly concentrated at the lower TG in the southern of Shannan, where ESV decreases with the increasing urbanization. We highlight the need for targeted, sustainable development policies to rationally organize the urbanization process in the different-gradient plateau regions with fragile vegetation. These results can provide a reference for applying ESV to vegetation restoration and ecological protection in ecologically fragile mountain areas. © 2022 by the authors.