Inclusion of legumes in ruminant diets increases the nutritional value and contributes to N fixation in the soil. The aim of this study was to determine the optimal level of alfalfa hay (Medicago sativa L.) as a partial replacement for ryegrass silage (Lolium multiflorum L.). Alterations in nutrient intake, N utilisation efficiency, rumen parameters, and microbial protein synthesis in sheep were investigated. Four rumen cannulated wethers, without a defined breed, in a Latin square 4×4 design, were fed four experimental diets formulated to replace ryegrass silage with alfalfa hay at a rate of 0, 15, 30, or 45%. Animals that received high levels of alfalfa showed a linear trend in dry matter intake and digestible organic matter content. Dietary N was utilised more efficiently, resulting in reduced N release into the environment when alfalfa was included in the diet. True N digestibility and retained N levels increased linearly with increasing proportion of dietary alfalfa. The efficiency of protein synthesis in the rumen remained unaffected. Furthermore, replacing ryegrass silage with alfalfa hay did not affect rumen pH. It can be concluded that such substitution enhances the intake of digestible organic matter, reduces rumen ammonia N concentrations, and increases N retention in sheep. In addition, the supply of the grass-legume mixture in the trough allows for better utilisation of the forage, thereby avoiding the setbacks and costs associated with mixed grass and legume pastures. Further studies are needed to evaluate other forage legume species because Brazil has a range of legumes that could be exploited for ruminant feed production.