The climatic impacts of the construction of water power stations in the dry-hot valleys in China, including local increases in air moisture and decreased precipitation, negatively affect native vegetation, and thus are a significant ecological problem. Dodonaea viscosa, an indigenous shrub of dry-hot valleys, was used to evaluate the effects of these climatic changes. In this paper, a growth chamber experiment was conducted to quantify the growth and development responses of D. viscosa seedlings to different soil water and air humidity conditions, and further to explore how soil drought and air humidity damage this species. D. viscosa seedlings were subjected to three water (13.0%, 7.0%, and 1.5%, water capacity) and three air humidity (RH 75%, 65%, and 50%) regimes, arranged in a completely random design. Then, seedling growth, root development, and biomass allocation were measured to evaluate climatic effects on seedling growth, and leaf chlorophyll, Fv/Fm, and MDA were measured to detect sites damaged by soil drought and increased air humidity; finally, leaf soluble sugar was measured to determine whether the seedlings respond to soil drought and air humidity through osmoregulation. Our results suggestted that soil drought dramatically decreased the height, leaf number, branch number, and biomass of seedlings. However, these characteristics increased with air humidity from 50% RH to 65% RH, then deceased when the humidity rose to 75% RH. In addition, soil drought decreased root length, root surface area, root projected area, root tips, and root volume, but increased the seedlings' RMRs (root mass ratio); in contrast, higher air humidity increased root length and decreased RMR, but maximized root surface area, root projected area, root tips, and root volume at the moderate RH 65% level. We also found that soil drought and air humidity had no effect on chlorophyll, but influenced Fv/Fm significantly, which indicates that its photosynthetic electron transport chain was damaged; furthermore, MDA increased under soil drought stress, which suggests that membrane peroxidation occurs under such conditions, but there was no significant MDA increase when air humidity increased from 50% RH to 70% RH. Soil drought also increased leaf sugar levels, suggesting that D. viscosa responds to soil water stress through osmoregulation. Thus, we conclude that increased air humidity can alleviate the effects of soil drought on the seedling growth of D. viscosa, which implies that the construction of water power stations in the dry-hot valleys of China would not have a significant negative impact the population dynamics of D. viscosa. Our results would be useful in evaluating the impacts of water power station construction on vegetation dynamics in dry-hot valleys in China.