The Hani Rice Terraces System is one of the Globally Important Agricultural Heritage Systems (GIAHS) sites which can successfully resist extreme droughts. The reason is not only that the forests and terraces have the important function of water conservation, which provide and conserve adequate water resources for this complex ecosystem, but also that Hani traditional ecological knowledge plays an important role in the drought-resistance process. In this paper, drought-resistant mechanisms of the Hani Rice Terraces System have been analyzed first, then Hani traditional ecological knowledge has been analyzed based on a comprehensive literature review, a questionnaire survey and key informant interviews. The results show that the Hani nationality has developed knowledge of water management techniques, including water conserving construction, water allocation and ditch management. The Hani people are also highly conscious of water resources protection. There is a good deal of forest resource management knowledge and worship of forests, which have effectively helped in protecting the forest ecological system. In the reclamation and maintenance of Hani terraced fields, the Hani people have developed a series of farming systems, which have effectively protected the terrace ecosystem. Through analyzing this knowledge of water management, forest resource management and Hani terraced fields management, our paper confirms the important role that traditional ecological knowledge plays in maintaining stability of the system and realizing the efficient use of water resource. This is not only helpful for preserving cultural heritage, but is vital for protecting the Hani Rice Terraces System as a whole.