<p>Fallow policy (FP) plays a critical role in restoring the agroecological environment and ensuring sustainable land use. Such policies have been widely recognized and implemented by various countries and regions worldwide. Since 2016, China has introduced a multi-rotation FP that has garnered significant attention. However, the effectiveness of this policy and its specific impacts on agroecology are not fully understood. Using 1240 micro-survey data and the propensity score matching method (PSM), this study evaluates the effect of FP on the agroecological environment from farmers’ perception in Northwest China. Furthermore, the policy heterogeneity and specific performance of this effect are revealed. The results show that, as perceived by farmers, FP can effectively promote the restoration of the agroecological environment, improving its comprehensive level by 4.868%. The finding remains robust across multiple evaluation methods employed. The analysis further reveals that the effect is heterogeneous in terms of policy characteristics such as participation level, subsidy standard, and stewardship model. The effect increases with higher levels of fallow participation and is significantly larger in groups with high stewardship subsidies or opportunities for stewardship. Finally, while FP can effectively address various agroecological environmental issues within Northwest China’s pilot area such as soil salinization, soil desertification, water and soil loss, biodiversity reduction, cropland pollution, and soil fertility decline; it proves to be challenging to improve water shortages and farming conditions in cultivated land.</p>