Population growth and economic development have impacted the capacity of water resources to meet demands in a number of arid countries. This study focuses on the United Arab Emirates (UAE) where low rainfall, high rate of growth and agricultural development are resulting in a dramatic depletion of groundwater resources and an increased dependence on desalination. A water budget for the region was developed. It represents the variations in groundwater storage as a balance of total precipitation, desalinated water and evapotranspiration. The components of the water budget are obtained from ground observations, documented information, models and remote sensing data, using Gravity Recovery and Climate Experiment (GRACE) satellites to estimate changes in groundwater storage and Tropical Rainfall Measuring Mission (TRMM) satellites and Global Land Data Assimilation System (GLDAS) data to obtain precipitation and soil moisture respectively. Results show a negative trend of 0.5 cm/year in groundwater levels corresponding to an average decrease of 0.86 km3/year during the study period (2003 to 2012). This negative trend indicates that the aquifers are not being recharged fast enough to compensate for human withdrawals. Most of the precipitation was found to be lost through evapotranspiration. A discussion of the current water budget components is presented and propositions are made for a sustainable use of water resources in the UAE, including a more efficient use of recycled water. This analysis is applicable to other Gulf countries and it can help to determine the optimal allocation of water resources to optimize agricultural productivity.