This paper assessed cotton production and land use change (CPLC) and resource competition along the Aksu-Tarim River (ATR) of Xinjiang, China. Trend analysis, correlation analysis, and the Comparative Advantage Indicies (CAI); Efficiency Advantage Index (EAI), Scale Advantage Index (SAI) and Aggregated Advantage Index (AAI) analysis were used in guiding efficient resource allocation for sustainable cotton production; minimize resource competition and conflict in the arid region. The results revealed a relative variation in comparative advantages (CA) in cotton production among upstream and downstream farms, and inside and outside Bingtuan between the years 1989 to 2009. CA for cotton production and agricultural land use area was observed for counties along the upper reaches of the ATR than their counterparts. Furthermore, CPLC were more responsive to policies than market price. Also, human, population, proximity of cotton farms to a water source, and cotton production was the major drivers of land use. Finally, key measures that could impact future sustainable cotton development were discussed based on CAI and ecology.