Abstract: For the resource depletion and environmental degradation in grain production, environmental economic methods were applied to investigate the resource-environmental cost of grain production in the gully area of Loess Plateau. In the study area in 2008, the resource-environmental loss due to grain production was 19.05% of the total agricultural output, and the resource-environmental cost reached to 2.02 Yuan/kg for wheat and 1.19 Yuan/kg for corn, the total cost was 4.08 Yuan/kg and 2.23 Yuan/kg respectively. However, the procurement price was only 1.72 Yuan/kg for wheat and 1.28 Yuan/kg for corn. The situation of high production cost and low income affected food security and the sustainable development of local ecological economy. The factor analysis on the various factors among the total cost of wheat and corn indicated that agricultural chemical fertilizer cost and resource-environmental cost were the important factors affecting the total cost of grain production. Under current production conditions, the resource-environmental cost of grain production in the area could be reduced by raising the level of scientific and technical inputs, improving the utilizing efficiency of the means of production, and evolving ecological agriculture, so that the sustainable development of the area can be maintained.