The socio-economic development of a country is highly dependent on water availability. Nowadays, increasing water scarcity is a major global challenge. Continuing improvements in water-use efficiency are essential for cotton production sustainability. Reduced irrigation in cotton could be a solution to water shortage in the arid climate without compromising the cotton yield. Therefore, a two-year field study was conducted to assess the effect of two levels of irrigation i.e., 50% and 100% of available water content (AWC) on the yield of four cotton genotypes (CIM-678, CIM-343, CRIS-613, and CYTO-510). The maximum seed cotton yield was observed in CIM-678, which was 2.31 and 2.46 Mg ha−1 under 100% AWC during 2018 and 2019, respectively, and was non-significantly reduced by 7.7 and 8.94%, owing to deficit irrigation. The maximum water use efficiency (WUE) of 0.55 and 0.64 Kg ha−1 mm−1 was observed under 50% AWC in CIM-678, which was significantly higher than WUE at 100% AWC during both years. Leaf area index and physiological parameters such as photosynthesis rate, transpiration rate, and stomatal conductance were not significantly affected by deficit irrigation. So, it was concluded that the reduced irrigation technique performed well without significant yield loss, improve WUE, and saved 37 cm of water that could be used for other crops or to increase the area of the cotton crop.