Water stress and nutrient deficiency are considered to be the main environmental factors limiting plant growth and species interaction in semiarid regions. However, less is known about the interactive effects of soil water, nitrogen and phosphorus on native species growth and relative competitive ability. A replacement series design method was used with 12 mixed plants of Bothriochloa ischaemum and Lespedeza davurica grown in a pot experiment under three water regimes and four fertility treatments. Intercropping systems were assessed on the basis of indices such as biomass production and allocation, relative competitive ability, aggressivity, relative yield total and water use efficiency (WUE). Water stress decreased significantly the total biomass production for each species, either in monoculture or in mixtures. N, P, or NP application can significantly improve biomass production of the two species in their mixtures. There was no obvious change trend in root/shoot ratio of B. ischaemum or L. davurica in different mixture proportions. Relative yield total (RYT) values ranged from 0.98 to 1.39. Aggressivity values of B. ischaemum to L. davurica were positive in all water regimes and fertilizations, implying that B. ischaemum was the dominant species. Relative competition intensity values of B. ischaemum (i.e., RCIB) were less than zero, while greater than zero for L. davurica (i.e., RCIL), indicating that the effects of intraspecific competition with L. davurica were stronger for B. ischaemum, and the opposite for L. davurica. WUE increased gradually as the proportion of B. ischaemum increased in mixtures, and a 10:2 B. ischaemum:L. davurica mixture proportion had significantly higher WUE. Results suggest that it is advantageous to grow the two species together to maximize biomass production and the recommended mixture ratio was 10:2 of B. ischaemum to L. davurica because it gave higher RYT and significantly higher WUE under conditions of water deficit.