Abstract: Due to the influence of human activities on Taihang Mountain area, the land use structure of numerous small watersheds has undergone significant changes over the past few decades, which in turn affects the “Production-Living-Ecological” land use structure, ecosystem services, and the livelihood of mountain farmers in small watersheds. The Dongyangpo watershed is a typical transitional geographical space in the transition from the subalpine area to the hilly area of Taihang Mountain area. This study aimed to systematically study the impact of “Production-Living-Ecological” land use change on ecosystem services and farmers’ livelihoods in small mountain watersheds. Taking the Dongyangpo watershed, a typical small watershed in Taihang Mountain area, as an example, this study evaluated the structure change and ecosystem service values of “Production-Living-Ecological” land from 2000 to 2020 by modifying the coefficient of equivalent factor method in combination with the actual situation of the small watershed, and further investigated and analyzed the impact of the land structure change of “Production-Living-Ecological” on farmers’ livelihood by considering Forsythia suspensa, which has the largest artificial planting area. The research results showed that, first, over the past 20 years, the “Production-Living-Ecological” land structure in the Dongyangpo watershed had remained basically unchanged, showing ecological land > production land > living land. However, the land use mode within the ecological land had changed, which was specifically reflected in the significant increase in the planting area of F. suspense, the local dominant tree species, and reduction in grassland areas. Second, the ecological land in the Dongyangpo watershed contributed the most to the total ecosystem services, and the total ecosystem services value in each period accounted for more than 99% of the total. Third, over the past 20 years, the ecosystem service value had increased significantly, with an increase of 146.89%. The main reason for this was a large portion of grasslands in ecological land transforming into forest land represented by F. suspense forest, and the ecosystem service value increase caused by this change accounted for 99.95% of the total value of ecosystem services. Fourth, over the past 20 years, the increase in F. suspensa forest land supply services accounted for 43.05% of the increase in small watershed supply services and 28.02% of the increase in total ecosystem services value in the small watersheds. After F. suspensa planting, the livelihood level of farmers in the Dongyangpo watershed had improved, and the improvement of F. suspensa forest land ecosystem service supply benefits had increased the income of farmers in the Dongyangpo watershed. The change of “Production-Living-Ecological” land brought by F. suspensa planting also played a role in optimizing and adjusting the structure of farmers’ income source. This study provides a theoretical basis for the coordinated development of the ecological economy in Taihang Mountain area.