Mongolia is a vast country comprised of mountains, rangelands, and desert landscapes with scarce water resources. As a consequence of socio-economic and climate changes during last two decades, social-ecological vulnerability of Mongolia’s pastoral social-ecological systems has increased. To study these dynamics, we have applied the Dryland Development Paradigm (DDP) (Reynolds et al. 2007) for analysis of pastoral social-ecological systems in the Tuin and Baidrag river basins, located in Bayanhongor aimag, Mongolia. The dynamics of a coupled human-environmental system is defined by primarily by two different variables factors, such as, in this case, market forces and climate disasters. Privatization of livestock in early 1990s has triggered and interest in increasing private livestock numbers – especially in the number of goats due the value of their cashmere. However, a series of climate disasters, droughts followed by zud (severe winter conditions), caused massive livestock losses. Global warming is the most critical slow variable in the drylands, with amplified consequences than in other regions. For example, the decrease in water resources in the region already exceeded the threshold level observed by local residents. Only three out of the twenty-five rivers (based on a map 1969) were inflowing into the Tuin River during our field survey in summer of 2009. Orog lake was completely dry in summer of 2009, and depth of the Boontsagaan lake is decreasing rapidly (Davaa. 2010). The residents of the Tuin river basin concluded that global level regulation is more important, but residents of the Baidrag river basin was claiming that local regulation is the most critical. These differences can be explained by the level of water depletion of the Orog and Boon Tsagaan lakes. A body of up-to-date local knowledge is essential for management and policy development of pastoral human-environmental systems. Ecological vulnerability (drought, stocking rate relative to carrying capacity) and social vulnerability (livestock number per capita, distance to the market, livestock loss during zud) assessments showed that social-ecological vulnerability has increased more rapidly in the desert steppe region compared to other ecological zones. This indicates that the desert-steppe region is becoming more vulnerable to climate and land use change.