Studying the microbial community of grassland degradation is of great significance for grassland restoration. Thus, we used an Illumina HiSeq PE250 high-throughput sequencing platform to study the changing characteristics of soil fungal communities in degraded grasslands, which were categorized as non-degraded (ND), lightly degraded (LD), moderately degraded (MD), and severely degraded (SD). Moreover, a correlation analysis between soil physical and chemical properties and fungal communities was completed. The results showed that the number of plant species, vegetation coverage, aboveground biomass, and diversity index decreased significantly with increasing degradation, and there were significant differences in the physical and chemical properties of the soil among the different degraded grasslands. The dominant fungal phyla in the degraded grassland were as follows: Ascomycota, 44.88–65.03%; Basidiomycota, 12.68–29.91%; and unclassified, 5.51–16.91%. The dominant fungi were as follows: Mortierella,6.50–11.41%; Chaetomium,6.71–11.58%; and others, 25.95–36.14%; and unclassified, 25.56–53.0%. There were significant differences in the microbial Shannon–Wiener and Chao1 indices between the non-degraded and degraded meadows, and the composition and diversity of the soil fungal community differed significantly as the meadows continued to deteriorate. The results showed that pH was the most critical factor affecting soil microbial and fungal communities in SD grasslands, whereas soil microbial and fungal communities in ND grasslands were mainly affected by water content and other environmental factors.