Abstract Background Overgrazing is a major factor that causes steppe degradation in Inner Mongolian, resulting in extensive ecosystem damage. Scarcity of grass means sheep are smaller and therefore mutton and cashmere production is greatly reduced, which has resulted in massive annual economic losses. Liver is the primary metabolic organ in mammals. It is also the key source of energy supply and detoxification of metabolites in animals, has a close relationship with animal growth. However, investigations on the responses of sheep induced by consequence of overgrazing, particularly those relating to liver-related molecular mechanisms and related metabolic pathways, remain elusive. Results The body weight daily gain of sheep, immune organ indices (liver and spleen), and serum parameters... related to immune response, protein synthesis and energy supply (IgG, albumin, glucose and non-esterified fatty acid) were significantly lower in the overgrazing group. Other serum parameters including alanine aminotransferase, aspartate aminotransferase, alkaline phosphatase, total bilirubin, blood urea nitrogen and interleukin-6 were significantly higher in the overgrazing group. For the RNA-Seq results, we identified approximately 50 differentially expressed genes, of which half of were up-regulated and the other half were down-regulated (overgrazing group versus light grazing group). Bioinformatics analysis identified two enriched KEGG pathways including peroxisome proliferator-activated receptor (PPAR) signaling pathway (related to lipolysis) and ECM-receptor interaction (related to liver injury and apoptosis). Additionally, several of the down-regulated genes were related to detoxification and immune response. Conclusions Overall, based on the high-throughput RNA sequencing profile integrated with the results of serum biochemical analyses, consequences of lower forage availability and quality under overgrazing condition induced altered expression levels of genes participating in energy metabolism (particularly lipid metabolism) and detoxification and immune responses, causing lipolysis and impaired health status, which might be key reasons for the reduced growth performance of sheep. This investigation provides a novel foundation for the development of sheep hepatic gene interactive networks that are a response to the degraded forage availability under overgrazing condition.