Based on land use data of 1994 and 2004 in Wangdonggou watershed, through developing dynamic model of LUCC and indices of regional ecological environment, this paper quantified the characteristics of LUCC and its ecological effect. The results showed that from 1994 to 2004, farmland decreased while grassland and orchard increased greatly, forest and nonproductive land changed little. The speed of individual land use changes was in the order of grassland > orchard > nonproductive land > farmland > forest land. As to the spatial change, a total of 11 major land use change types were identified, among which the change from farmland to others and form others to forest were the most important land use change. The gravitational center of farmland and orchard moved to the northwest tableland, while those of forest land and grassland moved to the southeast gully land. From 1994 to 2004, owing to LUCC, the ecological environment was improved, but the type of land use and their change took effect differently with both improving and decreasing effect. The decrease of farmland affected ecological environment negatively, while the increase of forest and grassland and orchard improved the ecological environment and its ecosystem service values. Those improving the ecological environment were from other types of land use to forest and orchard, while those worsening the ecological environment were from forest to others and from farmland to nonproductive land.