Phreatophytes survive under arid conditions by accessing groundwater, but their seedlings' response to water and nutrient availability in the topsoil remains poorly understood. This study investigated the effects of well-watered, medium drought, and severe drought conditions-with or without nitrogen-on growth, osmotic regulation, nitrogen metabolism, and carbon-nitrogen metabolic regulation in Alhagi sparsifolia seedlings, dominating hyper-arid Taklimakan desert, Northwestern China. Both medium and severe drought stress significantly reduced growth and impaired physiological traits. Both drought treatments decreased leaf, stem, and root biomass and negatively impacted physio-biochemical traits in leaves and roots. Moreover, chlorophyll a, chlorophyll b, Rubisco activity, and leaf relative water content decreased, while chlorophyllase activity increased under medium and severe drought. Nitrate, ammonium, and key enzymes (nitrate reductase, nitrite reductase, glutamine synthetase, glutamate synthase, aspartate aminotransferase, alanine aminotransferase) declined, with more pronounced reductions under severe drought. However, deaminating glutamate dehydrogenase and aminating glutamate dehydrogenase activities increased in the leaves, while isocitrate dehydrogenase activity rose in both organs under both drought treatments. Alpha-ketoglutarate increased in leaves, and glutamate dehydrogenase activity in roots increased only under medium drought, indicating enhanced metabolic regulation. Additionally, drought reduced starch but increased soluble sugar as well as increased oxidative stress markers like nitric oxide and nitric oxide synthase and elevated osmolytes (proline, glycine betaine). However, nitrogen addition under drought improved growth, reduced chlorophyllase activity, enhanced leaf relative water content, increased pigments, Rubisco, osmolytes, carbohydrates, and up-regulated carbon-nitrogen metabolic enzymes, supporting stress tolerance. Nitrogen alleviated drought effects, especially under medium drought, highlighting its potential to enhance drought tolerance and aid the conservation of A. sparsifolia in hyper-arid ecosystems facing future climate change.