The southern edge of the Taklamakan Desert has a typical inland warm temperate desert climate. It is hot in summer, with little rain and drought; it has abundant light and heat, and strong evaporation; and it has a large water deficit. Desert plants in this region are often subjected to multiple stresses of drought, high temperatures, strong light, and wind and sand. Alhagi sparsifolia Shap. represents an important vegetation community on the southern edge of the Taklamakan Desert. Alhagi sparsifolia Shap. plays an important role in mitigating the effects to wind and sand and in maintaining the fragile ecological environment of the Taklamakan Desert. It is, therefore, important to study the adaptability mechanism and strategy of A. sparsifolia under environmental stress conditions such as extreme light and drought for the restoration of degraded vegetation. Current research indicates that A. sparsifolia is heliophyte. Study of its habitats, however, suggested that-when other conditions were the same-its morphology and physiology changed significantly with increased shading (from 100% natural light to 20% natural light), and the plants rarely appeared when shading increased enough. Therefore, this study assumes that the shading environment will have a significant impact on the morphology and physiological ecology of A. sparsifolia and will affect the distribution and succession of vegetation communities as the degree of shading increases. The objectives of this study were to investigate the effects of shade on the leaf traits and water physiological characteristics in A. sparsifolia on the southern edge of the Taklamakan Desert. We conducted three treatments:natural light (NL), moderate shade (MS) and severe shade (SS). The results showed that increasing shading significantly reduced the leaf thickness (LT), leaf mass per unit area (LMA), net photosynthetic rate (Pn), stomatal conductance (Gs), transpiration rate (Tr) and water use efficiency (WUE) in A. sparsifolia, while it increased the individual single leaf area (LA), specific LA (SLA), relative water content (RWC), water loss rate (RWL) and water potential (WP). We concluded that A. sparsifolia changed its leaf traits to adjust to shade by changing the single LA and single leaf dry matter accumulation; changed its water physiological characteristics to adjust to shade by attenuating characteristics that have good resistance to water stress; and adjusted its stomatal regulation and water consumption to maintain a certain photosynthetic capacity. Correlation analysis between the leaf traits and water physiological parameters show that the changes in leaf traits in A. sparsifolia in shade mainly influenced the RWL, WP, Tr and WUE, which then influenced the changes in water physiological characteristics. Therefore, this study recommends protecting and repairing A. sparsifolia in extreme arid regions using shading measures; however, the degree of shade should be between 70% and 80% natural light.