Drought is a major limitation for plant growth, development and production worldwide. It becomes an increasingly serious problem due to global climate changes. Water deficit affects virtually every aspect of plant metabolisms. Periploca sepium Bunge (P. sepium) is a native and widespread shrub on the Loess Plateau, a typical drought-prone region in China. An experiment was conducted to investigate the effect of drought stress on growth, water relations, biomass partitioning, osmotic adjustment, lipid peroxidation, and oxidative enzyme activities of 2-year-old potted P. sepium plants. The plants grown under well-watered and water stressed conditions which were imposed by controlling the water supply. Results showed that the peak water consumption and fast-growing period of P. sepium plants under three different water treatments appeared the rainfall season (June to August) of the Loess hilly regions. P. sepium plants grown under the water deficit condition had much less growth rate and biomass accumulation than the plants grown under the well-watered condition. In contrast, P. sepium plants under drought condition had significantly greater root to shoot ratio and water use efficiency (WUE) than the well-watered plants. The increase in WUE with the decreases in biomass and water consumption under water stress condition seemed to be the water-saving strategy of P. sepium. The malondialdehyde (MDA) content and the membrane permeability are often used to estimate the degree of lipid peroxidation. The MDA content and the membrane permeability in leaves of P. sepium plants did not differ between the drought stress and well-watered treatments until the end of the experiment. The SOD and POD activities in the leaves increased throughout the experiment for both the well-watered and water stressed plants. Osmotic adjustment has long been proposed as an effective drought resistance mechanism of higher plants, which can help plants maintain turgor and turgor-dependent processes. Water deficit stimulated the accumulation of proline, soluble sugar and soluble proteins in P. sepium leaves under the moderate and severe drought stress conditions. The contents of these three solutes were highest under severe water stress condition and followed by those under moderate drought stress conditions. The proline and soluble sugar contents increased during the experiment, while the soluble proteins content showed an initial increase and then subsequent decrease. Our results indicate that some key physiological processes may facilitate P. sepium establishment and growth in the semi-arid and arid Loess hilly region, which include not only drought avoidant but also drought tolerant strategies. These strategies find expression in the abilities of taking the full advantage for the limit water resource, reducing transpiration, enlarging the roots for deeper soil moisture, keeping high activities of protective enzymes, and accumulating more organic solutes. As a native shrub on the Loess Plateau, therefore, P. sepium has been evolved many adaptations to counteract water deficit stress as a result of the long-term natural selection and co-evolution. This study provides useful information for vegetation restoration with P. sepium in the Loess plateau.