As an essential pathway for nature-based solutions, vegetation restoration can effectively absorb carbon sequestration and mitigate global warming. However, with the increase in water demand, the expansion of vegetation creates potential water conflicts between natural ecosystems and human-social systems, and it has even exacerbated local water shortages, especially in water-limited regions. Considering both natural and human water consumption, this study used multiple datasets (three precipitation and three ET data) to explore the vegetation restoration potential in the drylands of China and the allowable vegetation conversion under the constraint of water availability. We found that the additional water resources available for vegetation restoration after considering water consumption of current vegetation and human in the study area were 12 ± 114 (median ± SD) mm during 2003 to 2018, [only a sixth of China’s], and decreasing gradually (-1.18mm/year) over the period. 43.3% of the drylands had water deficits. Additional GPP that could be restored under current water constraints ranges from 8% to 12% depending on vegetation types (10.23% for forests, 11.65% for grasslands, 7.67% for irrigated crops, and 9.49% for rain-fed crops). Areas with water surpluses (primarily located in the south and east) allow for most conversion types toward higher-water-consumption vegetation. In areas with water deficit (primarily located in the west), even converting all the existing vegetation to less water-intensive vegetation would not compensate for the water deficit in most regions, which means that the local vegetation has exceeded the water-carrying capacity and needs to be more conducive to sustainable development in the future. Our research can improve water resource utilization and provide a reference for decision-making in vegetation restoration.