The injudicious use of poor-quality water for irrigation poses significant challenges to crop production, soil quality, and the environment. The decline in good-quality water resources has forced the use of poor-quality water for agriculture. This study investigated the effect of irrigation water quality and fertigation levels on bell pepper yield, water use efficiency, and soil properties under mulching in sandy loam soil in semi-arid conditions using surface drip. Four irrigation water qualities, namely canal, desalinated, saline, and mixed canal and saline water in equal ratios, were evaluated under varying fertigation levels (100%, 80%, and 60% of recommended NPK dose), for both un-mulched and mulched (using silver-black polyethylene mulch, 25µ) conditions. Results showed that reducing groundwater salinity through desalination from EC 4.07 dSm− 1 to EC 0.390 dSm− 1 resulted in a 58% increase in fruit yield coupled with enhanced water use efficiency. Soil pH1:2, EC1:2, and sodium adsorption ratio significantly increased with irrigation water salinity. The application of polyethylene mulch and increasing fertigation levels significantly enhanced fruit yield and water use efficiency, while minimizing soil salinity and health hazards in regions with a scarcity of good quality irrigation water and brackish water aquifers. Therefore, desalinated or mixed water sources have an edge over poor-quality irrigation water to raise bell pepper under a drip system with an acceptable yield loss. The overall study underscores the importance of using desalinated or mixed water sources to improve crop production and protect the environment in regions with water scarcity.