Promoting the sustainable development of human settlements is an essential requirement for achieving economic growth, protecting biodiversity, and preserving cultural diversity in the northwest Yunnan region. This paper reviews the 1998 research process on sustainable human settlement planning in the area, which focused on ecological conservation and human settlement development. Utilizing an integrated and coherent research methodology, the study systematically analyzed key challenges faced by the region, including lagging regional development, ecological degradation, frequent natural disasters, loss of cultural diversity, insufficient infrastructure, and continuous decline in human settlement quality. It proposed that the region should coordinate ecological conservation with socio-economic development, promote step-by-step development of eco-tourism and cultural tourism, advance systematic development of urban and rural human settlements, and thereby drive high-quality regional growth. Action plans were formulated focusing on national park system development, infrastructure improvement, and county-level development pilot programs, with particular attention to the visionary planning of the “City of Shangri-La” in Zhongdian County (now Shangri-La City), Diqing Prefecture. Building on this foundation, the paper provides forward-looking perspectives on sustainable human settlement development in northwest Yunnan. Future recommendations emphasize continuing tourism optimization to establish the region as a “Healthy Living Destination,” strengthening transportation connectivity and cultural tourism industry development, and facilitating high-quality regional transformation.