Since the 18th National Congress, the integrated protection and systematic management of "mountains, water, forests, fields, lakes, grasslands, and sands" has emerged as the cornerstone of ecological governance in China. The core idea of "mountains, water, forests, fields, lakes, grasslands, and sands" shifted ecological governance from traditional single-department management to a more intricate, multi-department collaborative governance. Many studies found that ecological protection and restoration under single-department management in source area made short-term economic welfare losses to local households. Thus, it is necessary to explore whether this integrated, multi-department collaborative ecological governance, rooted in the concept of "mountains, water, forests, fields, lakes, grasslands, and sands", can truly enhance the economic welfare of these farmers. To thoroughly evaluate the impact of the "mountains and rivers" project on the economic welfare of farmers, an extensive and detailed study was conducted using field survey data from 480 households across four counties including Kaihua, Changshan, Chun'an and Jiande in Zhejiang Province, involved in the "mountains and rivers" projects. Employing the Propensity Score Matching-Difference in Differences (PSM-DID) method for rigorous verification, the findings reveal that the "mountains and rivers" project significantly boosts the economic welfare of farmers who participated with project with an overall increase of 4.7% compared with farmers who did not participated with project. The robustness of this conclusion is further confirmed by the PSM-DID estimation results, which show no significant deviations from the original findings. Mechanism analysis used by the intermediation effect model indicates that the "mountains and rivers" project enhances farmers' economic welfare by creating local employment opportunities for participation in "mountains and rivers" projects, thereby reducing the distance for local households out-migrated to non-farm employment. Heterogeneity analysis for household samples with different human capital and social capital group reveals that, under the "mountains and rivers" project, farmers with higher levels of human and social capital experience relatively got greater improvement in economic welfare. Based on these insightful findings, several policy recommendations to strengthen the overall effectiveness of multi-department collaborative governance and improve the economic welfare of farmers in source areas, are proposed in this paper as follows: firstly, optimizing the top-level organization design of the "mountains and rivers" project; secondly, establishing an integrated ecological compensation mechanism at community level for ecological protection and restoration, especially for "mountains and rivers" projects; thirdly, providing more nearby employment opportunities for farmers in local communties, and finally increasing ecological compensation standard for local vulnerable households' groups.