In India, 51 % of the net sown area relies on rainfed agriculture, with 40 % of landholdings unirrigated and 13 % partially irrigated. Rainfed farming produces 40 % of food grains and supports two-thirds of the livestock population but faces challenges like land degradation, low productivity, and biodiversity loss due to erratic monsoons and extreme weather. Additionally, India’s water scarcity is worsening, with per capita availability expected to reduce from 802 cubic meters in 2022 to 677 cubic meters by 2050. Therefore, to meet the diverse food requirements of the burgeoning population of the country, conservation of natural resources, and improving the living standard of the resource-poor small and marginal farmers is imperative. Integrated watershed management (IWM) has emerged as a climate-smart strategy to address these challenges by enhancing soil and water conservation, agricultural productivity, and livelihoods in dryland systems. This study assesses the impact of IWM on dryland agriculture in India by analyzing various interventions such as in-situ and ex-situ water conservation, soil health management, and the use of modern technologies like remote sensing (RS) and geographic information systems (GIS). The results revealed that the adoption of IWM practices has led to significant improvements in soil moisture retention (20–25 %), soil organic carbon (22–32 %) agricultural productivity (30–45 %), and water use efficiency (15–25 %). Additionally, soil conservation techniques have reduced soil loss and runoff by 25–50 % and 50–60 %, respectively. Furthermore, the cultivation of lemon grass (Cymbopogon flexuosus), anjan grass (Cenchrus ciliaris), and bamboo (Bambusa spp.) could be the nature-based solutions for mitigating the impact of climate change due to their soil binding capacity and carbon sequestration potential. Moreover, this review indicates the potential of fast-growing trees (Melia dubia) under the agroforestry system in enhancing carbon sequestration by >100 % over sole cultivation. These results demonstrate that IWM is a sustainable solution to mitigate the adverse effects of climate change on dryland farming systems and improve rural livelihoods. Further, the study suggests that IWM practices helps to achieve sustainable development goals (SDGs) such as zero hunger, no poverty, and climate action etc., particularly in the face of climate change in water-scarce regions.