Agroforestry is the most effective way to restore the disturbed lands in the hilly region of Shangluo and to develop the currently poor local economy. In order to study the potential benefits of tree-based intercropping systems, photosynthesis, growth and yield of soybean (Qindou 8) (Glycine max L.) and salvia (Radin salviae Miltiorrhizae) were studied by measuring photosynthetic active radiation (PAR), plant water deficit and soil moisture in a 6-year-old plantation of walnut (Juglans regia L.) grown at a spacing of 5 m × 3 m in the hilly region in Shangluo. The effects of tree competition significantly reduced the PAR, the net photosynthetic rate (Pn), growth and yield of individual soybean or salvia plants growing near (within 1m near) tree rows. In 2010, daily plant water deficits were not significantly correlated with the Pn and growth and yield of the both crops. However, the soil moisture (15-30cm depth) was significantly correlated with biomass and yield of the crops. The PAR was highly correlated with growth and yield of the both crops, which indicated that competition for light is one of the key factors impacting crop yield. Possible remediation strategies were suggested that may reduce competitive interactions between the tree and crop species.