Understanding the implications of replacing fallows with cover crops on plant-available water (PAW) and soil mineral nitrogen (N) and their carry-over effects on subsequent cash crops is critical for understanding their potential for ecological intensification in water-limited environments. We modelled the impacts of different cover crop functional types over historical climate to predict how climate variability influences soil water and N acquisition and subsequent availability to a maize crop in a dryland farming system of subtropical Australia. Following local validation of simulation models (APSIM) with 3-site-years of field data, 70 years of crop-fallow rotations were simulated comparing conventional fallow against a diverse range of cover crops comprising monocultures and mixtures of grass vs. legume vs. brassica. Cover crops consistently reduced soil water and mineral N at maize sowing compared to conventional fallow. In dry to normal precipitation years, this induced a maize yield penalty of up to -18% relative to fallow, primarily due to reduced water availability. In wet years, increased in maize grain yield (+4%) was predicted following legume and grass-associated cover crop mixtures with concomitant reductions in N leaching and soil surface runoff of up to 40%. Cash crop yields following grass -cover crops were more stable and carried lower downside risks; multi-species (grass-legume-brassica) cover crop mixtures carried higher yield penalties and greater downside risks due to high biomass accumulation and high soil water extraction. These long-term predictions in water-limited environments indicate that increasing cover crop complexity by using mixtures with diverse functional traits can lead to a greater risk of yield losses and increased yield instability unless they are managed differently to monoculture cover crops. Therefore, for suc-cessful integration of cover crops into dryland agroecosystems, cover crops should be considered as a flexible choice grown under favourable precipitation and economic scenarios rather than for continuous fallow replacement.