Texas cotton production is facing challenges arising from increased temperatures and extended droughts. One potential solution to mitigate these environmental stresses lies in enhancing soil health through measures aimed at increasing soil organic matter and microbial biomass. Our field study investigated the effectiveness of adding residue on soil surface to increase soil organic matter content, microbial biomass, and cotton production under experimental warming with open-top chambers (OTCs). The OTCs raised the air temperature by 2 °C but did not affect soil temperature. OTCs also increased microbial biomass and soil respiration rate. Residue addition increased moisture content in non-irrigated (i.e., dryland) soils under experimental warming and concurrently reduced the daily temperature range in warmed plots. Furthermore, residue addition increased microbial biomass and soil respiration, particularly under OTC treatments in dryland soils. We also observed increased soil organic matter, microbial biomass, cotton biomass, and yield in irrigated fields compared to dryland. Our findings suggest that residue retention can mitigate the adverse effects of warming by stabilizing soil microclimate and enhancing soil organic matter and microbial biomass levels, especially in drylands. This, in turn, can help attenuate the potential impacts of future climate change on soil health and crop production in semiarid environments.