Desertification is one the most significant environmental problems in drylands of the world. This is the case in Mexico where fifty percent of its territory is drylands, which is home to 60% of the country's population. High variability in rainfall, coupled with increasing livestock numbers, have caused severe deterioration of plant cover, soil structure and the water retention capacity of drylands, resulting in increased run-off and, hence, increased water loss and gully formation. The aim of our study was to apply the DDP, which is a holistic framework to address the inherent complexity of desertified landscapes, by identifying how key socioeconomic drivers interact with hydrological variables in a rural community in Central Mexico. The study system is characterized by patches of pine-oak forest, rangeland and rain-fed agriculture. We examined how water inputs and outputs differed for three land-use types and how humans have adapted to changing hydrology in this landscape. We monitored precipitation and run-off at 10 sites in each land-use type and determined the proportion of plant and soil cover at each site. With participatory methods, we explored the community perception of climate change, soil water erosion and gully formation. Where plant cover (mainly perennial grasses) was £10%, run-off was more than double that of adjacent forests and agricultural land (P<0.0001). Taking advantage of economic incentives provided by government to augment livestock production, the La Amapola community increased water collection tanks at the base of a number of these emerging gully systems. In efforts to mitigate and restore degraded rangelands in this dynamic system, adaptive capacities, emerging opportunities and complex feedbacks within the landscape must be considered.