High soil salinity, drought, and poor soil fertility, especially phosphorus (P) deficiency, are serious challenges for crop production in arid and desert climate regions. In these regions, irrigation water (mostly groundwater) is saline, and fertilization is one of the strategies used to cope with salinity stress. Crop livestock is one of the major agricultural activities in marginal regions, and blue panicum (Panicum antidotale Retz.), the perennial forage grass, has the potential to furnish forage demand. Thus, a field experiment testing the combination of three levels of irrigation water salinity and three P rate was carried out to evaluate the potential of P fertilizer to enhance yield and salinity tolerance of blue panicum grass. The experiment was conducted for two years between 2019 and 2020 in Foum el Oued, Laayoune, Morocco. It was implemented in a split-plot design with three replications considering irrigation water salinity as the main plot and P rates as sub-plot treatments. The evaluated P rates were 0, 90, and 108 kg P2O5 ha−1 (P1, P2, and P3, respectively), and the irrigation water salinities were 5, 12, and 17 dS·m−1. The results revealed that increasing irrigation water salinity significantly decreased the biomass production and stomatal conductance of blue panicum. Increasing irrigation water salinity from 5 to 12 and 17 dS·m−1 decreased fresh biomass production by 20 and 29%, respectively. Irrigation water salinity also decreased (p < 0.05) leaf N, P, K, Ca, and Zn concentration. However, supplementation of P fertilization enhanced (p < 0.05) biomass production and stomatal conductance mainly by improving leaf OM, Zn, and Fe content. P fertilization at 108 kg P2O5 ha−1 increased fresh biomass by 27%, 32%, and 19% under 5, 12, and 17 dS·m−1, respectively. Considering increased fresh biomass yield, P application at the rate of 108 kg P2O5 ha−1 can be suggested for saline drylands. P application is recommended to reduce the adverse effects of high salinity on growth and productivity and improve salinity tolerance of blue panicum in salt-affected arid and desert regions.