Traditional Ecological Knowledge (TEK) is one of the components of the Globally Important Agricultural Heritage Systems (GIAHS), which are good examples of evolutionary adapted socio-ecosystems in human history. The Hani Rice Terraces System, located in China’s southwestern Yunnan Province, is a living example of GIAHS. The Hani Rice Terraces system has existed for more than one thousand years, following TEK related to cultivation and natural resources management, which was collected and practiced continually. Over this long time period, TEK has enabled the Hani people to manage their terraces and other natural resources in a sustainable way. This paper concentrates on the TEK transferring in the current Hani community, taking a small village, Mitian, as an example. Grouping the interviewees into three different age groups (young group, 0–30 years old; middle-age group, 31–50 years old; old group > 50 years old), we investigated their understanding and participation in 13 items of TEK in relation to rice cultivation and water utilization. The items of TEK were divided into four categories, namely “Festivals”, “Beliefs”, “Folk Songs”, and “Water Management”. From the data collected, it was learned that all the items of TEK are well known, but not necessarily practiced. Age and gender have significant influences on farmers’ understanding and participation in TEK. Our analysis suggested that both the knowledge and the practice showed declining trends from the older to the younger age group. Men and women behave differently in practices. In general, it is shown that TEK is declining in the Hani villages which will affect the rice terrace system in ways that are yet unknown. It is likely that a blended TEK, with old and new knowledge and practices, will emerge to sustain the upland rice terrace systems of Yunnan.