The widespread decline and mortality of the Three-North Shelter Forest under climate change is threatening the sustainability of arid and semi-arid ecosystems. As the dominant tree genus in these shelterbelt forests, poplars (Populus spp.) display clear varietal differences in decline patterns, yet the underlying physiological mechanisms remain poorly understood. To address this question, we compared two poplar varieties, Populus alba var. bachofenii (P.b) and Populus alba var. pyramidalis (P.p), using branch samples from upper and lower canopy positions. The results showed that although hydraulic conductivities (Ks and Kl) did not differ significantly between varieties, P.b consistently exhibited lower percent loss of conductivity (PLC), particularly in the upper canopy branches. In contrast, P.p experienced more negative midday water potentials (Psi md) in the upper crown, indicating greater water deficit. Within P.p, declining individuals (P.p-D) displayed higher PLC, whereas hydraulic conductivity, predawn water potential (Psi pd), and non-structural carbohydrates (NSC) concentrations were similar to those of healthy trees, indicating that dieback was associated primarily with increased hydraulic vulnerability, rather than reduced transport capacity or carbon depletion. Tree-ring analyses further revealed stable growth in P.b, whereas P.p was more drought-sensitive and showed greater interannual variability. Trees with higher PLC exhibited greater growth sensitivity and reduced radial growth rates, supporting the hydraulic limitation hypothesis. Overall, this study clarifies the physiological mechanisms underlying the contrasting decline patterns among poplar varieties in water-limited regions, and provides guidance for optimizing species selection and management strategies in arid shelterbelts.