Cotton is considered as the main crop in the agricultural sector of Pakistan. Water deficiency in this region in recent years has reduced the chances of high yields of cotton. Selection and creation of high-yielding varieties of cotton, even in water deficit conditions, is one of urgent tasks of today. For this purpose, 40 diverse genotypes of upland cotton were screened in normal and water deficit conditions in triplicate arrangement under split plot in a randomized complete block design. All the genotypes showed significant difference under both water regimes. Ten upland cotton accessions were screened out as water deficit tolerant (VH-144, IUB-212, MNH-886, VH-295, IR-3701, AA-802, NIAB-111, NS-121, FH-113, and FH-142) and five as water deficit sensitive (IR-3, CIM-443, FH-1000, MNH-147, and S-12) based on seed cotton yield and stress susceptibility index. These tolerant and sensitive genotypes were crossed in line × tester mating design. For further evaluation of genetic material, the seed of 50 F1 crosses and their 15 parents were field planted under normal and water deficit conditions during next cotton growing season. Traits related to yield under the study showed significant variations among the accessions and their half sibs. The results of the principal component analysis (PCA) exhibited that total variation exhibited by factors 1 and factor 2 were 55.55 and 41.95%, respectively. PCA transformed the variables into three factors, and only two factors (F1 and F2) had eigenvalue > 1. The degree of dominance revealed that all parameters were highly influenced by non-additive gene action under both water regimes. Furthermore, the line VH-295 and tester CIM-443 had better yield performance under water deficit stress. The cross-combinations, viz., VH-144 × S-12, NIAB-111 × IR-3, and VH-295 × MNH-147, were the best for yield contributing traits. These combinations may be helpful for germplasm enhancement on large scale under water scarcity. All the studied traits have non-additive types of gene action suggesting the usage of these genotypes in cotton hybrid development program against water deficit tolerance.