Litter accumulation resulting from land use change (enclosure) is one of the key variables influencing seedling recruitment and consequently the regeneration of plant populations and seed persistence in the soil seed bank. A better understanding of the effects of litter on seed germination and seedling emergence is crucial for developing a new set of indicators for grassland ecosystem health and for grassland management policy. We investigated the effects of seed position in litter and amount of litter covering the seed on seedling emergence and seed persistence of three common species on the Loess Plateau in northwestern China. Seed position beneath the litter layer provided a suitable environment for seedling emergence of the three species. A moderate amount of litter (160 g/m) was beneficial for seedling emergence of the small-seeded species and from seeds from beneath the litter layer. The large-seeded species was more tolerant of a high amount of litter (240 g/m) than the two small-seeded species. Seed persistence in the soil differed among the three species and also was affected by seed position in litter and amount of litter cover. The proportion of viable seeds of and on top of the litter layer increased with an increase in amount of litter. Seedling emergence and seed persistence varied significantly among species, amount of litter and seed position in litter. A moderate amount of litter and seeds positioned beneath the litter layer were better for seedling recruitment than for those on top of the litter layer. A high amount of litter was more favorable for persistence of seeds positioned on top of the litter than for those beneath the litter. Our study showed that maintaining litter amount between 80 and 160 g/m is optimal for dominated grassland on the Loess Plateau. We suggest that litter amount can serve as a guide for monitoring and managing grassland ecosystems, as it is an indicator of ecosystem processes that are essential for biodiversity conservation and restoration.