[Objective] The impacts mechanism and policy effectiveness of the implementation of a new round of the returning farmland to forests and grasslands project on land use efficiency in the Yellow River basin were analyzed in order to provide a theoretical reference for understanding land use efficiency and promoting a new round of the returning farmland to forests and grasslands project. [Methods] The implementation of a new round of the returning farmland to forests and grasslands project in the Yellow River basin was used as a natural experiment. Land use efficiency was measured by the Super-Window-DEA model including unexpected output indicators. The double difference model and the mediation effect model were used to analyze the policy effectiveness and transmission pathways. [Results] ① Land use efficiency of 69 cities in the Yellow River basin slightly decreased from 2009 to 2020. Land use efficiencies for the upstream (0.546 5) and downstream (0.419 9) regions were higher than for the midstream region (0.279 5). ② The new round of the returning farmland to forests and grasslands project significantly suppressed the increase in land use efficiency, and the negative effects of policies were heterogeneous. Meanwhile economic development increased land use efficiency and population density decreased land use efficiency. ③ The proportion of arable land and fiscal expenditures were mediating variables for the impact of the new round of the returning farmland to forests and grasslands project on land use efficiency. Moreover, the proportion of farm land was a partial mediator. [Conclusion] The results of this study suggested increasing the implementation of returning farmland to forests and grasslands project on land with poor fertility and scarce labor input, encouraging cities in the Yellow River basin to open up wasteland and implement green policies for unused land. Additionally ecological compensation between the upper, middle, and lower reaches of the Yellow River basin and cities within the basin should be carried out. Full use should be made of credit funds to lead into ecological industrialization development. Upgrading of green industries should be promoted and efforts should be encouraged to develop a new model of ecological compensation for the project of returning farmland to forests and grasslands.