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Drip irrigation has been widely touted as a potential mean to promote ecological sustainability in arid crop production. However, the long-term viability of this practice also depends on its economic sustainability. Despite the potential increase in water use efficiency and yield, the system also needs to generate higher income to be popular among farmers. In view of this, we examine how the use of drip irrigation instead of traditional flood irrigation affects both the yield and gross margin of cotton production in arid northwestern China. Results from propensity score matching of production data from 228 cotton producers show that even though the use of drip irrigation increases farmers’ yield, its impact on gross margin is statistically insignificant. We furthermore find through regression analysis that the effect of drip irrigation on gross margin is significantly positive only for the farmers with less water availability constraint, as measured by their water use. With water scarcity in the region expected to increase in the future, the adoption of drip irrigation is likely to become less profitable and hence less viable from farmers’ perspective. Therefore, we conclude that especially in regions with water shortage, the promotion of drip irrigation technology inevitably needs to be supported by the simultaneous improvement of water infrastructure to ensure water access at all times. Only then the full potential of drip irrigation to support ecological sustainability of arid crop production can be tapped.