In ecologically fragile areas with arid climate, such as the Heihe River Basin in northwestern China, sustainable social and economic development depends largely on the availability and sustainable uses of water resource. However, there is more and more serious water resource shortage and decrease of water productivity in Heihe River Basin under the influence of climate change and human activities. This paper attempts to identify the severe water scarcity under climate change and presents possible solutions for sustainable development in Heihe River Basin. Three problems that intervened land use changes, water resource, the relevant policies and institutions in Heihe River basin were identified, including (1) water scarcity along with serious contradiction between water supply and demand, (2) irrational water consumption structure along with low efficiency, and (3) deficient systems and institutions of water resource management along with unreasonable water allocation scheme. In this sense, we focused on reviewing the state of knowledge, institutions, and successful practices to cope with water scarcity at a regional extent. Possible solutions for dealing with water scarcity are explored and presented from three perspectives: (1) scientific researches needed by scientists, (2) management and institution formulation needed by governments, and (3) water resource optimal allocation by the manager at all administrative levels.