Abstract: Water scarcity and soil salinization have seriously limited the sustainable agriculture in the arid regions. Bacillus subtilis (B. subtilis) has been widely used as the rhizosphere-promoting bacterium. The promising potential can be expected to enhance crop resilience and productivity under adverse environmental conditions. In this study, a series of investigations was implemented on the modulating mechanisms of B. subtilis on the soil microenvironment, in order to boost the cotton yield under water-salt stress. A field experiment was conducted in the mildly saline cotton fields in 2022. Two irrigation regimes were employed (standard irrigation at 4 875 m³/hm² and reduced irrigation at 3 900 m³/hm²), together with the various levels of B. subtilis application (0, 22.5, 45.0, 67.5, and 90.0 kg/hm²). A systematic evaluation was also performed on the soil microbial communities, soil water and salt dynamics, nutrient availability, soil enzyme activity, and cotton yield in response to these treatments. The results revealed that B. subtilis applications significantly altered the soil bacterial community structure, notably increasing the relative abundance of Bacillus species by 16.85% to 54.40%. Moreover, the B. subtilis enhanced soil water retention after the secretion of extracellular polymeric substances (EPS). Specifically, the evaporation was reduced to facilitate the upward movement of water from the deeper to surface layers, thus raising the soil moisture by approximately 0.02 cm³/cm³ in the cotton root zone. Additionally, the water distribution was altered to accelerate the salt movement, thus reducing the salt accumulation in deeper soil layers by 2–3 g/kg. The salt migration was also promoted towards the space among plastic mulches. B. subtilis further stimulated the soil enzyme activity and the availability of plant-accessible nutrients. The water use efficiency significantly increased by 10.9% and nutrient productivity by 13.8%. The total contribution to the yield then increased between 0.35% and 26.64%. Structural equation modeling indicated that B. subtilis indirectly enhanced the soil water, salt, and nutrient conditions in the saline soils. There were positive effects on microbial diversity, water use efficiency, and nutrient utilization (path coefficients: 0.876, 0.638, and 0.686, respectively). These influencing factors greatly contributed to a substantial increase in the cotton yield (path coefficient: 0.605). The highest cotton seed yield of 6 237.15 kg/hm² was observed with the NB2 treatment (45 kg/hm² B. subtilis) under the standard irrigation regime. The B. subtilis effectively mitigated the yield losses due to water stress in reduced irrigation plots. The MB2 treatment achieved a 4.4% increase in the boll number and a 3.8% increase in the seed cotton yield, compared with the non-treated control. Therefore, the B. subtilis application rate of 45 kg/hm² was optimal to improve the saline soils in the arid northwestern regions under water-salt stress. The finding can also provide valuable guidelines for the microbial soil amendment for sustainable cotton production in arid regions.