Loss of biodiversity is the single most important threat to the conservation and sustainable use of drylands in northern Ethiopia due to many centuries of cultivation and heavy livestock grazing pressure. The current study assessed the restoration of biodiversity in highly degraded areas in eastern Tigray, northern Ethiopia using area enclosures (AEs). The study assessed whether the differences in biodiversity between AEs and open management schemes and time of land abandonment influenced diversity of plant life forms (i.e. herbs, shrubs and trees). Changes in biodiversity were compared using the state-and-transition model. Management types and time since abandonment (hereafter called age) had a significant effect on herbaceous plant species abundance but not in shrub species, while site factors had a greater effect on diversity of plant life forms in general. Herbaceous species richness increased with age of restoration, reaching a maximum after three years of rest and declined thereafter, most probably as a result of hay harvesting and replacement of annual species by perennial grass species. Tree species richness increased gradually with age of land abandonment up to the maximum age of eight years. Four vegetation states and seven possible transitions that could guide management were identified. The vegetation states differed in terms of diversity of herbs and tree species but not those of shrubs. Promotion of tree species states will require longer periods of rest, while promotion of herbaceous species richness will need shorter periods. The state-and-transitional model could, therefore, be used to guide future management by promoting vegetation states that are desired by land users. Copyright © 2002 John Wiley & Sons, Ltd.