Surface heterogeneity drives the local-induced formation of clouds and their subsequent development through spatial variations in surface energy partitioning and boundary-layer processes. A central challenge, however, lies in disentangling the individual contributions of co-varying types of surface heterogeneity, such as topography, soil properties and land-use type. Using a combination of radiosonde observations, MODIS satellite data, and Large-eddy simulations, we separate the effects of topography and soil moisture in cloud formation over the Inner Mongolia grassland, China. Our results demonstrate a primary control of orographic forcing on cloud formation location, and a secondary control of soil moisture on cloud amount via surface sensible heat fluxes. Dynamically driven circulations initiate ascent on windward slopes, leading to convergence and cloud formation primarily over hills and lee side. Consequently, higher elevations with colder and wetter air corresponds to upward motion, creating a counter-intuitive correlation between vertical velocity and surface heat flux. Our analysis using a satellite-based soil moisture product reveals that high soil moisture suppresses cloud development by reducing sensible heat flux. These findings highlight the importance of jointly considering topography and soil moisture for improving the prediction of shallow cumulus occurrence in semi-arid regions.