Agroforestry integrates woody perennials with arable crops, livestock, or fodder in the same piece of land, promoting the more efficient utilization of resources as compared to monocropping via the structural and functional diversification of components. This integration of trees provides various soil-related ecological services such as fertility enhancements and improvements in soil physical, biological, and chemical properties, along with food, wood, and fodder. By providing a particular habitat, refugia for epigenic organisms, microclimate heterogeneity, buffering action, soil moisture, and humidity, agroforestry can enhance biodiversity more than monocropping. Various studies confirmed the internal restoration potential of agroforestry. Agroforestry reduces runoff, intercepts rainfall, and binds soil particles together, helping in erosion control. This trade-off between various non-cash ecological services and crop production is not a serious constraint in the integration of trees on the farmland and also provides other important co-benefits for practitioners. Tree-based systems increase livelihoods, yields, and resilience in agriculture, thereby ensuring nutrition and food security. Agroforestry can be a cost-effective and climate-smart farming practice, which will help to cope with the climate-related extremities of dryland areas cultivated by smallholders through diversifying food, improving and protecting soil, and reducing wind erosion. This review highlighted the role of agroforestry in soil improvements, microclimate amelioration, and improvements in productivity through agroforestry, particularly in semi-arid and degraded areas under careful consideration of management practices.