When the degraded Artemisia frigida (A.f) grassland was enclosed and recovered for 3-4 years, the plant community replacement showed a sudden transformation from semi-shrub A.f to Agropyron cristatum (A.c) community in the Inner Mongolia grassland. It has a great positive effect on the vegetation restoration from the A.f community to the A.c community in the Inner Mongolia grassland. However, few researches were reported on the succession and competition mechanisms of the A.c-A.f community. Water is a primary factor affecting plant growth and community succession. Climatic drought and overgrazing have led to changes in the vertical distribution of soil moisture in grassland. Due to the different depths of root distribution of A.c and A.f, the different vertical distributions of soil moisture may affect the competition between A.c and A.f. To explore the effect of soil water and its vertical distribution on the A.c and A.f competition, a pot experiment was set up, with three planting methods (A.c monoculture, A.f monoculture, intercropping of A.c and A.f) and three water treatments in upper (0-30 cm) and lower soil (30-60 cm) layers, including drought in upper and wet in lower soil (drought-wet), wet in upper soil and drought in lower soil (wet-drought), and drought both in upper and lower soil layers (drought-drought). The results showed that: (1) Compared with A.f, A.c was significantly affected by the change of the soil water content. Compared with the drought-drought treatment, the aboveground biomass and belowground biomass of A.c increased significantly in the wet (wet-drought or drought-wet) treatment. In contrast, the aboveground and belowground biomass of A.f did not change significantly in wet treatment. (2) There was no significant difference in aboveground and belowground biomass and root length of A.f and A.c between drought-wet and wet-drought treatment. (3) The roots of A.c and A.f could be distributed in a 30-60 cm soil layer under different water treatments. The root biomass and root length of A.c were significantly higher than those of A.f in the 30-60 cm soil layer. (4) The relative competition intensity and competitive attack coefficient showed that the competitiveness of A.c was greater than that of A.f under wet treatment, while the competitiveness of A.f was greater than that of A.c under drought-drought treatment. The changes in soil moisture caused obvious competition between A.c and A.f, but the competitiveness between A.c and A.f was similar in the wet-drought and drought-wet treatments. Due to both A.c and A.f being perennial species, the competition experiment of A.c-A.f still needs to be verified repeatedly in the future.