Drought stress limits cotton yield in arid regions by disrupting physiological and molecular processes. This study examined two genotypes: GISV-328 (sensitive) and G. Cot 16 (tolerant) using phenotypic, physiological, and transcriptomic data. Under water deficit, the tolerant genotype better maintained water status, membrane stability, photosynthetic efficiency, and osmotic adjustment, while the sensitive genotype showed greater oxidative damage. RNA-Seq identified 1,465 differentially expressed genes enriched in hormone signaling (especially ABA), MAPK cascades, amino acid/carbohydrate metabolism, secondary metabolite biosynthesis, and antioxidant responses. Key transcription factors (NAC, WRKY, bHLH, DREB) and stress-related genes (HSPs, LEA) were upregulated, indicating complex regulatory networks. The tolerant genotype exhibited stronger activation of osmotic regulation, antioxidant defense, and energy metabolism, whereas the sensitive genotype showed mostly structural and limited responses. Convergence of calcium, ABA, and ROS signals emerged as a core regulatory hub. Overall, drought tolerance in cotton results from coordinated interplay among signaling, transcriptional, and metabolic pathways that preserve cellular homeostasis and enhance adaptation to water scarcity.