We investigated the type and extent of degradation at three sites on the Agulhas Plain, South Africa: an old field dominated by the alien grass Pennisetum clandestinum Pers. (kikuyu), an abandoned Eucalyptus plantation, and a natural fynbos community invaded by nitrogen fixing-Australian Acacia species. These forms of degradation are representative of many areas in the region. By identifying the nature and degree of ecosystem degradation we aimed to determine appropriate strategies for restoration in this biodiversity hotspot. Vegetation surveys were conducted at degraded sites and carefully selected reference sites. Soil-stored propagule seed banks and macro- and micro-soil nutrients were determined. Species richness, diversity and native cover under Eucalyptus were extremely low compared to the reference site and alterations of the soil nutrients were the most severe. The cover of indigenous species under Acacia did not differ significantly from that in reference sites, but species richness was lower under Acacia and soils were considerably enriched. Native species richness was much lower in the kikuyu site, but soil nutrient status was similar to the reference site. Removal of the alien species alone may be sufficient to re-initiate ecosystem recovery at the kikuyu site, whereas active restoration is required to restore functioning ecosystems dominated by native species in the Acacia thicket and the Eucalyptus plantation. To restore native plant communities we suggest burning, mulching with sawdust and sowing of native species.