From the viewpoints of plant morphology and physiology, this paper discussed the survival strategy of grass and legume on mixed grassland under water stress, their competition for water and the hydraulic facilitation effects of legumes on water resource utilization, and the impact of drought on biological nitrogen fixation and nitrogen transfer of legume. It was indicated that to promote the productivity of grassland in arid area, the mechanisms of competition and coexistence between grass and legume should be further studied, and one of the main aspects should be the effects of water stress on their aboveground and belowground competitions and their feedback on the competitions.