Leymus chinensis and Medicago sativa are the two most significant perennial artificial grasses of the farming-pastoral ecotone of north China and are crucial for the development of animal husbandry in this area. In this region, water is an important ecological factor that limits plant ecophysiology and the growth of L. chinensis and M. sativa. To maximize the productivity of artificial grassland in this area, it is necessary to explore the mechanisms of the morphological and photosynthetic response characteristics of L. chinensis and M. sativa to water stress. Response characteristics, including the fluorescence characteristics, water use efficiency, biomass and biomass allocation to drought, are studied in this paper. This was done in order to propose the optimum soil moisture content for the growth of, and high economic benefits from, L. chinensis and M. sativa in the chestnut soil of the farming-pastoral ecotone of north China. Data on the morphological and photosynthetic characteristics of L. chinensis and M. sativa were collected from a controlled field experiment in the Taipusi Banner in Inner Mongolia. A water control experiment was applied from the 9^th week to the 13^th week of the field experiment to evaluate leaf net photosynthetic rate (Pn), actual photochemical efficiency of photosystem Ⅱ complex in the light (Ф_PSⅡ), photochemical quenching (qP), non-photochemical quenching (qN), water use efficiency (WUE), plant height, branch number and tiller number per plant, biomass and biomass allocation in modules of L. chinensis and M. sativa. The experiment consisted of three soil moisture gradients of 12%, 16% and 20%. The results indicated that, within the soil moisture range of the experiment: (1) the responses of Pn to soil moisture content of L. chinensis and M. sativa were different from each other, and the highest Pn depended on the highest Ф_PSⅡ and qP. The most suitable soil moisture content for the growth of L. chinensis was 20% and with a decrease in soil moisture content, the Pn of L. chinensis also decreased in a linear relationship; conversely, the optimum soil moisture content of M. sativa was 16%, and as soil moisture decreased, the Pn of M. sativa showed a non-linear relationship with an obvious threshold value. To some extent, the ecological amplitude of soil moisture of M. sativa was narrower than that of L. chinensis. (2) The appropriate soil moisture content for plant growth was attributed to plant height, branching and tillering. (3) The adaptive strategies of L. chinensis and M. sativa were similar, in that they adapt to environmental stress through increased root biomass when the soil moisture content was below the appropriate range. Pn, Ф_PSⅡ, qP, qN, WUE, morphological characteristics, biomass and biomass allocation in modules of L. chinensis and M. sativa would be changed with the changed soil moisture, which indicates that an optimum soil moisture content should be created for maximizing the growth of M. sativa and L. chinensis during production to obtain high economic benefits for the farming-pastoral ecotone of north China.