Global warming is limiting availability of water resources in arid and semi-arid regions, and so understanding water use efficiency (WUE) is increasingly important for agricultural production in those areas. As China is the largest cotton producing area, the problem of balancing WUE and efficient cotton production is a major issue. In this study, we used a natural population of 517 Upland cotton accessions to conduct a water-controlled trial in south and north of Xinjiang over two years. A total of 18 traits including agronomic traits, fiber yield indices and fiber quality indices, were investigated for broad-sense heritability and coefficient of variation. Appropriate water limitation was found to promote the establishment of favorable agronomic traits in cotton, associated with an increased cotton yield of 8.46％ in Xinjiang, at the expense of a certain degree of fiber quality, such as decreased fiber length and an over-higher micronaire value. We detected 33 QTL related to response to water limitation using a drought resistance coefficient (DRC), and 6 QTL were found using a comprehensive indicator of CIDT (comprehensive index of drought tolerance) at the genetic level by integrating resequencing data. Two novel QTL-hotspots including six differentially expressed genes (DEGs) were further identified related to the drought response of cotton. These findings not only suggested a new approach to irrigation of cotton fields in Xinjiang, but also provided abundant genetic evidence for genetic breeders to study drought improvement of crops.