To address the multiplying conservation challenges and resource constraints in face of breakneck economic growth, policymakers in China have become increasingly interested in developing new approaches in environmental policy. For this reason, Payment for Ecosystem Services (PES) is becoming a topic of discussion in society. This paper provides a general review of PES in China from both a theoretical and a practical perspective. It starts with an outline of relevant terms used by the international community, and is followed by a discussion of major components covered in PES for implementation, including basic principles, methods to determine compensation standards and approaches. The main PES programmes that have been implemented are presented. The paper reveals that PES in China has unique characteristics, compared to other countries, and that the necessary policy frameworks for developing PES and purely market-based instruments in China are rapidly taking shape. However, to successfully implement PES, the relations and conflicts between central government and local governments, between the government and the market, and between PES and poverty alleviation must be taken into consideration.