The germination of cotton (Gossypium hirsutum L.) seeds is affected by drought stress; however, little is known about the physiological mechanism affecting germination and the effect of melatonin (MT) on cotton seed germination under drought stress. Therefore, we studied the effects of exogenous MT on the antioxidant capacity and epidermal microstructure of cotton under drought stress. The results demonstrated a retarded water absorption capacity of testa under drought stress, significantly inhibiting germination and growth in cotton seeds. Drought stress led to the accumulation of reactive oxygen species (ROS), malondialdehyde (MDA), and osmoregulatory substances (e.g., proline, soluble protein, and soluble sugars); it also decreased the activity of antioxidant enzymes and α-amylase. Drought stress inhibited gibberellin acid (GA3) synthesis and increased abscisic acid (ABA) content, seriously affecting seed germination. However, seeds pre-soaked with MT (100 µM) showed a positive regulation in the number and opening of stomata in cotton testa. The exogenous application of MT increased the germination rate, germination potential, radical length, and fresh weight, as well as the activities of superoxide dismutase (SOD), peroxidase (POD), and α-amylase. In addition, MT application increased the contents of organic osmotic substances by decreasing the hydrogen peroxide (H2O2), superoxide anion (O2-), and MDA levels under drought stress. Further analysis demonstrated that seeds pre-soaked with MT alleviated drought stress by affecting the ABA and GA3 contents. Our findings show that MT plays a positive role in protecting cotton seeds from drought stress.