Abstract: Dry-hot valley areas are characterized by aridity and lack of rain. The fragile ecological environment of such regions poses huge challenges to the sustainability of the livelihood of local farmers, and the diversification strategies adopted by farmers are strongly related both to the quality of their livelihood and to sustainable regional development. This study analyzed the responses to a questionnaire returned by 629 farmers in Yuanmou County, which is in the dry-hot valley of the Jinsha River (China). First, the livelihood strategy value (V_LS) index was proposed by integrating the richness, homogeneity, and profitability of livelihood strategies. Second, the livelihood capital index system applicable to Yuanmou County was constructed and evaluated. Using livelihood capital as the independent variable, ordered logistic regression and random forest contribution ranking methods were used to identify the key elements of the livelihood capital affecting the V_LS of the farmers, and to explore the response of the V_LS to livelihood capital. The results reveal the following. (1) The average V_LS of the farmers is 17.09, and farmers with a medium V_LS account for the majority of samples. (2) The V_LS of farmers is regionally differentiated, with areas of high V_LS concentrated mainly in regions with relatively flat terrain and close to the county town. (3) The size of the labor force, the education level of the labor force, and the annual household income have substantial positive impact on the V_LS. Therefore, it is suggested that the education and vocational/technical training of farmers be strengthened to improve the skill and literacy of the labor force. Moreover, the government should provide convenient financial services for farmers to support them in diversifying their activities and achieving a sustainable livelihood.