Recent reports on cotton water use and root-canopy relationship responses to nitrogen (N) fertilizer management under varying water supply in arid regions are limited. This experiment was conducted to estimate cotton water use, root-canopy development, canopy photosynthetic rate (CAP), and yield responses to N application rates under varying water supply levels and to quantify associations between water use processes and N-induced variation in root systems. A two-year field experiment was conducted from 2019 to 2020 at a field site in Xinjiang, China. Cotton root traits and agronomic responses to three N fertilizer application rates (320, 272, and 224 kg N ha⁻¹) under two water supply levels (sufficient water supply: 400 mm; limited water supply: 267 mm) were evaluated. Root length density and root dry matter were maximized at 272 kg N ha⁻¹ under sufficient water supply and 320 kg N ha⁻¹ under limited water supply. CAP was strongly associated with crop stage water use induced by root-canopy variation. Under sufficient water, 272 kg N ha⁻¹ substantially increased water use and root growth, slightly inhibited leaf expansion, and substantially improved crop yield compared to 320 and 224 kg N ha⁻¹. Although net root productivity and live root length declined for 320 kg N ha⁻¹ under limited water supply, yield increase was not limited because of higher CAP and water use induced by the establishment of strong shallow roots. The results demonstrate that moderate N rate (272 kg ha⁻¹) under sufficient water supply improves yield through reducing LAI and promoting root growth, while higher N rate (320 kg ha⁻¹) under limited water supply achieves high yield through higher CAP, sufficient leaf area, and efficient water uptake under shallow root systems. These findings suggest that both N management strategies and water availability levels should be considered in future efforts to scale from canopy to root level responses in cotton.