Optimizing layout of pumping well plays a vital role in curbing the groundwater level decline. A novel optimization model is presented in this study. First, the optimal well number is obtained by taking into account factors of local economy and environment based on nonlinear programming model. Then, the well spatial layout assessment model is attained based on information entropy weight and technique for order preference by similarity to ideal solution (TOPSIS). After that, the relative closeness to positive ideal solution of alternative (ci) on the rationality of well spatial layout in cultivated land is calculated, and a set of alternatives are ranked according to the descending order of ci. Finally, the well optimization layout is obtained by combining the optimal well number with well spatial layout assessment result based on the GIS data of pumping wells. As a case study, this method was applied in Yongchang Irrigation District of Shiyang River Basin, the arid region of northwest China. Results show that under the conditions of sustainable use of water resources, the irrigation district needed 724 wells for irrigation, with a decrease of 31.0% when compared with the existing number of wells. The wells with low flow rate and operating efficiency distributed in high density where groundwater is over‐exploitation were recommended to be closed. This well optimization layout method is expected to play a significant role in helping make plans for exploiting groundwater at more sustainable level, curbing the groundwater level decline trend, and improving the local ecological environment. Copyright © 2015 John Wiley & Sons, Ltd.