Dryland wheat production on the Loess Plateau is constrained by water scarcity and low nitrogen use efficiency. A three-season field experiment (2022–2025) evaluated the combined effects of fallow tillage (subsoiling, SS; no-tillage, NT) and nitrogen rates (0, 90, 135, 180, 225 kg ha⁻¹) in a split-plot design. SS significantly increased soil water storage change during fallow (ΔSWS_f) in the 100–200 cm layer by 37.4 mm, leading to a 101.4% increase in post-anthesis deep soil water use. When combined with optimized N (135–180 kg ha⁻¹), SS reduced 0–200 cm nitrate residue compared to NT, whereas excessive N (225 kg ha⁻¹) increased deep leaching risk. SS with optimized N also enhanced post-anthesis flag leaf photosynthesis, nitrogen metabolism enzyme activities, and antioxidant capacity, thereby promoting dry matter and nitrogen accumulation, especially in dry seasons. SS with 180 kg N ha⁻¹ in the wet and normal seasons and 135 kg N ha⁻¹ in the dry season achieved the highest grain yield of 7114, 5699, and 5211 kg ha⁻¹ and water productivity of 13.55, 13.39, and 13.04 kg ha⁻¹ mm⁻¹. SS increased agronomic efficiency, recovery efficiency, and partial factor productivity of N, but these efficiencies declined significantly when N rates exceeded the optimum across all season types. Partial least squares path model identified ΔSWS_f as the primary yield driver and flag leaf traits as a key regulator reducing nitrate residue. In conclusion, SS with optimized N rates (135–180 kg ha⁻¹) synergistically improves yield, resource efficiency, and environmental sustainability, but excessive N under wet conditions should be avoided to prevent deep nitrate accumulation.