Abstract High‐density afforestation of single‐species causes soil desiccation and vegetation degradation, posing severe challenges for plant rehabilitation, survival and its sustainable soil water use in drought regions. We explored the eco–hydrological responses of density adjustment for a typical degraded Caragana korshinskii plantation on the Chinese Loess Plateau, using 2‐year field observations. The treatments included two thinning intensities [thinning one at an interval of one (T50) and two (T67) shrubs], three pruning intensities [pruning 25% (P25), 50% (P50), and 75% (P75) of branches], and a control treatment (CK). Results indicated that the total soil water storage (0–600 cm) in T50 and T67 was 14.1% and 17.0% higher than that in CK in 2020 ( p < 0.05). Treatments T67 and P25 significantly affected the length, basal diameter, and biomass of stems compared with the CK. Moreover, canopy transpiration at the individual–scale in T67 was 43.5% and 37.6% higher in 2019 and 2020 than that in CK ( p < 0.05). At the stand–scale, the canopy transpiration in T67 was reduced by 81.2% in 2019 and by 79.2% in 2020 compared with that in CK ( p < 0.05), respectively. In 2020, the water use efficiency in T67 was 13.8% and 101.7% higher ( p < 0.05) than that in CK and T50, respectively. These observations indicate that thinning the stand density by 67% (T67) promotes plant rejuvenation and improves highly efficient use of soil water for the excessively afforested C. korshinskii plantations on the Loess Plateau. Our findings will guide the rational management of overcrowded C. korshinskii plantations in similar dry regions.