Soil health is crucial for sustaining agriculture in arid and semi-arid environments. However, soil health assessments in these environments often lack indicators that are both sensitive to management and functionally linked to ecosystem services such as water regulation. This study evaluated a range of physical, chemical, and biological indicators of soil health under varying cropping intensities and amendments at two semi-arid locations to evaluate their sensitivity to management and their linkages to key soil water functions. Among various indicators tested, microbial responses were highly sensitive to compost application. Compost-amended cropping systems had significantly greater soil microbial biomass, labile carbon (C) content, and inorganic nitrogen (N), with the long-term compost site showing a 211% greater particulate organic matter-C, a 63% greater mineralassociated organic matter-C, and 63% to 268% greater microbial community sizes than those in no-compost amended systems. Cover cropping, particularly with a diverse mixture, modestly improved microbial activity and arbuscular mycorrhizal fungi abundance, with a stronger effect when combined with compost. While some indicators exhibited site-specific sensitivity, the most consistently responsive across sites were potentially mineralizable C, total fatty acid methyl esters (FAME), total labile N. Multivariate analysis identified total FAME (microbial community size), total labile N, particulate organic C and field saturated hydraulic conductivity (Kfs) as a minimum data set of indicators for soil health assessment based on their sensitivity, robustness in response, and functional relevance to soil water processes. These findings also support that compost application and intensification of cropping systems can optimize soil health and water regulation in water-limited environments.