Riparian zones are vulnerable to water regimes, which alter soil water availability and impact the persistence of riparian plants. However, little is known about the water use patterns of alpine riparian shrubs (e.g., Myricaria squamosa) in response to changes in soil water availability on the Qinghai-Tibet Plateau. This study examined the water-use patterns of M. squamosa along a zone of gradual degradation (light, moderate, and severe), located in the lower reaches of the Shaliu River in the Qinghai Lake watershed. Stable water isotopes (δH and δO) in xylem water, soil water and groundwater, as well as leaf water potential were monitored during the growing seasons from 2012 to 2013, and quantified the water-use proportions via MixSIAR model. Results showed significant differences in the isotopic signatures of M. squamosa from the light, moderate, and severe degradation sites across seasons, suggesting that M. squamosa exploited different water sources. MixSIAR results also revealed that M. squamosa used high proportions of shallow soil water in the light degradation site (35.4%) compared with the severe degradation sites (13.4%). By contrast, M. squamosa exhibited an ability to shift its water sources and to rely more on groundwater in the severe degradation site across seasons. The contrasting water-use patterns of M. squamosa along the gradual degradation zone were closely linked with the distributions of active root zones when competing for water. Higher predawn leaf water potential (Ψ) of M. squamosa (mean Ψ = -2.29 ± 0.7 MPa) was found in the light degradation site and lower Ψ values in the severe degradation site (mean Ψ = -3.3 ± 0.8 MPa), suggesting that M. squamosa depended on a high degree of flexible plasticity in water use to alleviate water stress along the gradual degradation. These results linked to water-use patterns and ecophysiological characteristics (e.g., Ψ) of plants responding to changes in available water are important for informing decision-making management strategies designed to prevent ecological degradation.