The studies to determine the role of foliar-applied potassium in alleviating the water stress associated damages in cotton were conducted at the Department of Crop Physiology, University of Agriculture, Faisalabad, Pakistan in collaboration with Plant Stress Physiology and Biochemistry Laboratory, Salinity and Environmental Division, Nuclear Institute of Agriculture and Biology (NIAB), Faisalabad, Pakistan during 2009-10. Experiments were carried out under wire house, laboratory and lysimeter conditions. The study comprised three phases. In first phase, laboratory experiments were conducted to test ten cotton genotypes obtained from Ayub Agricultural Research Institute, Faisalabad (FH-1200, FH-945, FH-900, FH-113, FH-207) and Central Cotton Research Institute, Multan (CIM-506, CIM-473, CIM-496, CIM-554, CIM-534) for their response to PEG-induced water stress at germination and seedling stage. From these experiments one, the best performing (CIM-473) and one, the poor performing (CIM-534) genotypes were identified for further use. In second phase, these two selected genotypes were used to estimate the effect of drought stress on α-amylase and protease activities and associated biochemical changes in germinating seeds. Results indicated that α-amylase and protease, total soluble proteins, reducing and non-reducing sugars in germinating seeds were significantly influenced due to drought created by PEG-6000. The seed germinating under normal conditions exhibited higher values for all these parameters than those which were facing water stress except in case of total soluble proteins which were higher for seeds germinating under water stressed conditions. In third phase, three drought tolerant (CIM-496, CIM-473 and FH-1200) and three drought sensitive (CIM-534, CIM-554 and FH-945) varieties were used to study the effect of foliar- applied potassium (0 and 1 %) on growth, yield and yield components. Experiments were conducted in lysimeters for consecutive two years with four water levels i.e. well watered (100% FC), medium watered (80% FC), low watered (60% FC) and soil stored moisture (40% FC). Measured amount of water was applied for irrigation and water flow meters were used for this purpose. Results indicated that tolerant cotton genotype maintained higher values for growth yield and yield components. Foliar application (1%) of potassium significantly improved the drought tolerance potential, growth, yield and yield components in all cotton genotypes. However, cotton genotype CIM-473 ranked first in fiber strength, fiber length, fiber uniformity ratio, boll weight, leaf temperature and net photosynthesis rate but fiber elongation, fiber micronaire and potassium contents were higher in CIM-496. While genotype FH-1200 with the foliar application (1%) of potassium produced the highest ginning turn out, number of bolls, yield, and plant height. Foliar application of 1% as supplementary source of potassium under water stress conditions was found helpful in improving drought tolerance in cotton.