Eco-compensation plays an important role in the maintenance of national ecological security, strengthening environmental protection and improving people's livelihood. Determiningthe amount and scope of eco-compensation is a difficult but important issue in eco-compensation research, attracting the attentions of the academic community in and abroad. This article provided an economic analysis to indicate that the added value of ecosystem services under ecological restoration should present the best evidence for defining the amount of eco-compensation. A case study for determining the amount of eco-compensation in the Three-River Headwaters Region (TRHR, China), using grassland restoration study, was provided for further analysis. Three essential steps for calculating the added value of ecosystem services are: (1) identifying the valuation indexes of grassland ecosystem services in the TRHR; (2) quantifying the per unit values associated with those service from different degraded grassland; and (3) summing the flux in those values as the area of each degraded grassland changes. For operational purposes, the classification of ecosystem services in the TRHR was identified along functional lines proposed by Millennium Ecosystem Assessment. The method identified the links between human welfare and services provided specifically by ecosystems. A series of grassland ecosystem services in the TRHR were grouped into four categories: supporting services, provisioning services, regulating services and cultural services. Among these four categories, supporting services differed from the other three categories as their impacts on people were either indirect or occurred over a significant time period. In contrast, changes in the other three categories had relatively direct and short-term impacts on human well-being. To avoid double counting, supporting services were not taken into account in the valuation of ecosystem services. Concurrently,provisioning and cultural services were not included in the valuation of ecosystem services in the TRHR because of the eco-compensation demand. Four types of ecosystem services including water regulation, air quality regulation, climate regulation and soil conservation were evaluated using remote sensing and geographic information system (GIS) technology, as well as ecological economic methods. The results showed that the total value of the four ecosystem services in the grassland ecosystem in the TRHR (2005) was 1068.42×10⁸ RMB before grassland restoration, including water regulation at 706.87×10⁸ RMB, air quality regulation at 8.56×10⁸ RMB, climate regulation at 246.18×10⁸ RMB and soil conservation at 106.81×10⁸ RMB. In consultation with experts, a modified coefficient for the average value per unit area according to grassland degradation degree in the TRHR was generated. With the modified coefficient, the average value per unit area of non-degraded grassland, mild degraded grassland, moderate degraded grassland, heavy and severe grassland was estimated at 74.70×10⁴ RMB /km², 59.76×10⁴ RMB /km², 37.35×10⁴ RMB /km² and 14.94×10⁴ RMB /km², respectively. In view of the current status of degraded grassland in the TRHR, the amount of eco-compensation would be 911.62×10⁸ RMB during a 8-year period of grassland restoration. This compensation scheme was grouped into four phases: Stage one, 38.75×10⁸ RMB; Stage two, 312.51×10⁸ RMB; Stage three, 197.26×10⁸ RMB; Stage four, 131.51×10⁸ RMB. The research results can effectively inform the decision making process for regional sustainable management in the TRHR.