Water is the most important limiting factor in the growth of plants in dry-hot valleys; furthermore, the increase in planting density also causes resource limitation in plant growth. However, the interactive effects of water and planting density on plant growth characteristics and intraspecific relationships are not clear. In this study, Dodonaea viscosa, a dominant species in dry-hot valleys was used as the research subject. According to the rainfall during the growing season of Yuanmou dry-hot valley, D. viscosa was planted with three water levels (high water, medium water, and low water) and at four densities (1, 2, 4, and 9 plants/pot) to explore the influence of water, planting density, and their interaction on growth, biomass accumulation, and intraspecific interaction of D. viscosa. The results showed that (1) under the low-water treatment, the growth and water physiology of D. viscosa were inhibited, but the relative water content was still high when the leaf water potential decreased greatly. (2) Drought stress significantly reduced the total biomass and individual biomass and significantly increased the proportion of litter biomass. Under the low-water and medium-water treatments, the increase in planting density had no significant effect on total biomass, whereas under the high-water treatment, the increase in planting density significantly improved total biomass of D. viscosa. (3) The allometric exponent of stem biomass and leaf biomass was significantly greater under the low-water treatment, which indicated relatively more biomass was allocated to leaves, and the allometric exponent decreased under high-planting density. (4) The intraspecific relationship of D. viscosa exhibited a competitive effect, and the intensity of the competitive effect increased with decreased water content and increased with an increase in planting density. Under the high-density treatment (9 plants/pot), increasing water content did not reduce the competitive effect. In conclusion, both water and planting density affected the growth and physiological characteristics of D. viscosa. In the process of vegetation restoration, the effect of water and planting density on resource constraints of D. viscosa should be considered.