Improving farmers' degree of industrialization is the best way to address poverty and fragile ecological environments. In this study, we used participatory rural appraisal (PRA) and multinomial logistic regression models to analyze the effect of farmers' livelihood capital and livelihood strategies in Hangjin Banner, which is located in the hinterland of the Kubuqi Desert, in order to explore the key factors that affect farmers' conversion from pure agriculture to agriculture-dominant and non-agriculture-dominant strategies. The results indicated (1) that farmers' livelihood capital is relatively low and that the natural capital was the lowest, although some variation was observed. In addition, (2) the popular ones adopted strategies were pure agriculture strategies, agriculture-dominant strategies, non-agriculture-dominant strategies, and non-agriculture, and the farmers using the different strategies differed in their livelihood activities and income structure. However, (3) human capital was the key factor affecting the transformation of farmers' livelihood strategy; and overall family labor ability, per capita arable land area, per capita annual income, and the number of relatives and friends available to provide assistance were the most important factors affecting farmers' conversion from pure agriculture to agriculture-dominant or non-agriculture-dominant strategies. Therefore, these livelihood capital indices could promote the transformation of agriculture structure, with the exception of per capita arable land area. Finally, we propose policy changes and suggestions for improving the livelihood and regional ecological environment of Hangjin Banner.