Red fox, a canine predator inhabiting in the grassland of eastern Inner Mongolia, is positioned near the top of the food chain. It plays an important role in rodent control. Consequently, research on red fox helps scientists accumulate basic data and offers a scientific basis for the protection of grassland ecosystems and red fox management. Red fox habitat selection in the Dalai Lake Natural Reserve was systemically studied from November 2009 to January 2010 and from March to April 2010. Line transects were used for 101 plots known to be used by the red fox and for 144 comparison plots. We processed our field data and analyzed them using principal component analysis. Using landform analysis of the study area and other relevant research work, we defined seven significant factors influencing habitat: vegetation type, sheltering class, food abundance, snow depth, distance to water sources, distance to fences, and distance to residential areas. Our results show food and sheltering class were two key factors that affected red fox habitat selection. Distance to residential areas and distance to fences also affected the red fox habitat selection to some degree. Snow depth and distance to water sources had minimal effects on red fox habitat selection. Using Bayesian methods and 3S technology, we analyzed landscape features and studied red fox habitat distribution using an existing fox distribution map. We found that the red fox prefers two kinds of habitats: reed pond and willow shrub. Reed pond and willow shrub covered 1093.47 km² of the analysis area; red foxes also occasionally use watercourses, typical grassland, and meadow steppe which covered 4721.79 km²; unsuitable habitat, including open water covered 1968.09 km². Those were 14.05%, 60.67%, and 25.29% of the analysis area, respectively. The unsuitable patches were mainly water covered with little sand; they were not studied. We concluded most of the suitable habitat patches for red fox are relatively smaller in size and fewer in number compared with red fox habitat in other areas previously studied by other researchers. The shapes of the three types of habitat listed above are suitable for the survival of the red fox, but the distribution of each type of patch is too concentrated to provide adequate distribution of the red fox population. We conclude the number of suitable patches should be increased to provide additional and more diverse types of grassland patches suitable for red fox across the landscape. We recommend controlling grazing to increase the density and the height of grass which, in turn, improves available sheltering habitat in patches suitable for red fox. Meadow used for grazing and meadow reserved for red fox habitat must be strictly separated. Through this method some relatively suitable patches could be improved to highly suitable patches for red fox. This would increase the red fox population and provide improved rodent control.