Abstract: The ecological compensation mechanism for rare earth mining region is essential for the rational use of rare earth resources and environment protection. However, this mechanism in China has not well-established yet. Based on analyzing the defects and underlying reasons for the current compensation mechanism, this paper studies the effective incentives on the key stakeholders including ecological restoration evaluation, execution and ecological compensation drawing insights of international ecological compensation design. The alternative tool designs of ecological compensation are analyzed. Some suggestions on improving the ecological compensation mechanism are put forward.