An experiment was conducted to study the effects of different soil water potential (SWP) on soil water content, hot pepper’s yield, water consumption and water use efficiency (WUE) under plastic-mulched drip irrigation in the North-West China in order to find a suitable SWP to guide the pepper irrigation. Five treatments were set based on SWP, they are -10kPa (N1), -20kPa (N2), -30kPa (N3), -40kPa (N4) and -50kPa (N5). A control treatment (N6) was set based on local irrigation practice, i.e. border irrigation. SWP was measured using tensiometers at 0.2 m depth immediately under drip emitters. Pepper leaf area, plant height, soil water content, yield and total soluble solid (TSS) were measured, soil water content and water use efficiency were calculated. Results shows that the differences in leaf area index and plant height are not significant (P>0.05) among treatments of N1, N2, N3 and N4. While the pepper yields, WUE and TSS are higher for treatments N3 and N4. Controlling SWP at -50kPa greatly decreases crop yield and WUE. Therefore, we recommend -30 ~ -40 kPa as the irrigation threshold for pepper cultivation under mulched drip irrigation in arid areas of the North-West China.