Drought stress is a major limiting factor in crop production. Genetic improvement is possible in cotton and other crops against drought stress by using new tools of breeding. Thirty upland cotton (Gossypium hirsutum L.) cultivars/genotypes were screened for the traits related to drought tolerance (relative water content, excised leaf water loss, cell membrane stability and biomass reduction). Two drought tolerant (B-557 and MNH-554) and two drought susceptible (FH-1000 and N-313/12) cultivars were identified and crossed to develop F1, F2 and backcross generations. Genetic analysis was conducted for relative water content, excised leaf water loss, cell membrane stability, developmental/yield and fibre quality traits (plant height, number of monopdial branches, number of sympodial branches, bolls/plant, boll weight, ginning out-turn, fibre length, fibre strength and fibre fineness). Additive, dominance as well as genetic interaction was found in the inheritance of the traits under drought stress condition. Medium to high narrow sense heritability was observed for the traits. The analysis of parental and F2 population of the cross B-557 × FH-1000 studied under osmotic stress in hydroponic culture showed that the traits, relative water content, excised leaf water loss and cell membrane stability had correlation with biomass production. Positive correlation of relative water content with cell membrane stability reveals that the genes which help plant maintain relative water content are also indirectly involved for cell membrane stability. Correlation analysis of F2 population under field drought revealed positive correlation of relative water content and cell membrane stability with plant developmental/yield and fibre quality related traits. The correlation results from hydroponic culture and field studies showed that relative water content, excised leaf water loss and cell membrane stability may be used as indicator of drought tolerance in cotton. A survey of 524 SSR and EST-SSR primers revealed a lot of DNA polymorphism between drought resistant (B-557) and drought susceptible (FH-1000) cultivar. The polymorphism was used to construct genetic linkage map using F2 population. In linkage analysis, 22 primers were mapped on chromosomes. Two QTLs for relative water content were identified on chromosome 23 and 12. One QTL for excised leaf water loss was found on chromosome 23. These QTLs may be used in molecular breeding programs to develop drought tolerant cotton varieties.