Long-term conservation tillage and straw incorporation are reported to improve the soil health, growth, and yield traits of crops; however, little is known regarding the optimal nitrogen (N) supply under conservation tillage with straw incorporation. The present study evaluated the effects of conservation tillage practices (ZTsas: zero tillage plus wheat straw on the soil surface as such, and MTsi: minimum tillage plus wheat straw incorporated) and different N application rates (50, 100, 150, and 200 kg ha−1) on the yield and quality traits of cotton and soil characteristics in a five-year field experiment. The results showed that ZTsas produced a higher number of bolls per plant, boll weight, seed cotton yield, 100-seed weight, ginning out-turn (GOT), fiber length, and strength than MTsi. Among different N application rates, the maximum number of bolls per plant, boll weight, seed cotton yield, GOT, 100-seed weight, fiber length, strength, and micronaire were recorded at 150 kg N ha−1. Averaged over the years, tillage × N revealed that ZTsas had a higher boll number plant−1, boll weight, 100-seed weight, GOT, fiber length, and strength with N application at 150 kg ha−1, as compared to other tillage systems. Based on the statistical results, there is no significant difference in total soil N and soil organic matter among different N rates. Further, compared to MTsi, ZTsas recorded higher soil organic matter (SOM, 8%), total soil N (TSN, 29%), water-stable aggregates (WSA, 8%), and mean weight diameter (MWD, 28.5%), particularly when the N application of 150 kg ha−1. The fiber fineness showed that ZTsas had no adverse impact on fiber fineness compared with MTsi. These results indicate that ZTsas with 150 kg N ha−1 may be the optimum and most sustainable approach to improve cotton yield and soil quality in the wheat–cotton system.