The extremely arid Aksu-Tarim Region (ATR) in northwestern China is one of the country’s most important cotton production bases. However, in recent years, the negative ecological consequences of the intensive agricultural production become apparent. Apart from the degradation of riparian vegetation, competition for scarce water resources among farmers tightens. To be able to develop solutions for the aggravating problems, and sustain the ATR as a favored agricultural production base, it is decisive to clearly understand the land- and water-use development and its driving forces in the ATR. Statistical yearbook data from 1989 to 2011, comprising the four administrative regions of the ATR, namely Aksu and Bayangol prefectures, as well as Division 1 and Division 2 of the military farms, and annual producer price data constitute the data base for the present study. Relevant policy documents and data obtained through a stakeholder workshop complement the analysis. It is shown that agricultural land area more than doubled during the 1989–2011 period. This is a result of the interaction of: (1) vast population growth and related increase in agricultural labor; (2) positive price developments for fruits and cotton; (3) strong increase in agricultural profitability, triggering further land reclamation; (4) afforestation programs pushing for the establishment of orchards; and (5) insufficient restriction of agricultural land expansion. It is recommended to step up the efforts to move people out of agriculture into other sectors, and significantly improve agricultural water productivity by increasing yield levels and shifting crop production towards labor-intensive high-value commodities.