Evaluation of the ecological effects of eco-compensation policies helps analyze policy rationality and feasibility and provides scientific and practical bases for perfecting eco-compensation systems. Taking the key ecological function area of the Loess Plateau, China as a case study, we have evaluated ecosystem responses to the Grain-for-Green Project that commenced in 1999. Six indicators were selected to assess changes in ecosystem structure, quality and function. The results showed that implementation of the Grain-for-Green Project has reduced sloping cropland by 1571 km² and increased ecological land by 1337 km². The increase in ecological land alters ecosystem structures across the study area and the decline in sloping cropland reduces farming activity interference; both of these are conducive to the restoration of natural vegetation. From 2000 to 2010, the vegetation cover of grassland, desert and forest ecosystems increased 10.89%, 8.34% and 4.24% respectively and average NPP rose 51%, with an average annual growth rate of around 5%. This indicates that eco-compensation has promoted the improvement of ecosystem quality. Total biomass of ecosystems increased two times on average from 2000 to 2010, meaning that the carbon sequestration capacity of ecosystems also increased. The reduction in the area of water loss and soil erosion and the increase in retained runoff by forests indicate an improvement in ecosystem function and services on the Loess Plateau.