Seventy five diversified accessions of Triticum aestivum L. were screened to assess the variability for drought tolerance at seedling stage in the green-house of Department of Plant Breeding and Genetics, University of Agriculture, Faisalabad. On the basis of relative performance of the genotypes, five tolerant and two sensitive genotypes were selected and crossed in 7 × 7 diallel mating design. The breeding material was evaluated under green-house and field conditions with three replications following completely randomized design and randomized complete block design, respectively under normal and drought conditions. The data regarding various seedling traits viz; root length, shoot length, root weight shoot weight and other plant traits like days to heading, days to maturity, plant height, flag leaf area, tillers per plant, spike length, number of spikelets per spike, spike weight, grains per spike, spike grain weight/spike straw weight ratio, thousand-kernel weight, biomass per plant, harvest index, rate of photosynthesis, rate of transpiration and grain yield per plant. All the traits showed decreasing trends due to drought stress except root length. Existence of sufficient amount of genetic variability was evident among genotypes for all the parameters. On performing adequacy test, it was suggested that data was fully adequate for spike length, plant height, spike weight, spikelets per spike and rate of photosynthesis under normal condition while for traits like shoot weight, days to maturity, plant height, spike length, tillers per plant, thousand-kernel weight, harvest index and grain yield per plant under drought condition indicating the presence of dominance and absence of epistasis.All the remaining traits exhibited the partial adequacy under both the conditions. The results of the genetic studies showed that almost all the traits exhibited additive genetic effects with partial dominance and with moderate to high heritability. High heritability estimates were observed for root weight, shoot weight, plant height, grain weight per spike, flag leaf area, days to heading, thousand-kernel weight, biomass per plant, rate of transpiration and grain yield per plant under both the conditions. Correlation studies among seedling traits revealed significant and positive genotypic and phenotypic association of root length with root weight, shoot length with shoot weight and root weight with shoot weight under both environments. Grain yield per plant had positive and significant genotypic and phenotypic association with almost all the traits under both conditions. Negatively significant genotypic and phenotypic association of grain yield was found with days to heading under both conditions. Although grain yield can be enhanced through selection on yield components as they have strong association with yield under both conditions but special emphasis should be given to plant height, thousand-kernel weight and plant biomass because of their strong association with yield. The genotypes with adequate grain-fill period can have better yielding ability under normal and stress as well because of negative association of days to heading with yield while it was positive with days to maturity. The partial dominance with additive gene action in most of the traits suggests that selection could be carried out in early generations using pedigree or single seed descent methods to have genetic gains under water limited environment. The G7´G2, G5´G6 and G4´G7 were found the potential cross combinations in terms of yield and yield related traits for future breeding programs. The information may also be used to evolve high yielding varieties for sustainable wheat production in those areas where drought stress is a major threat.