Field application of dairy manure is supposed to alter rates of nitrogen mineralization in to nitrate nitrogen in soils but quantitative information regarding its rate of release under deficit irrigation is difficult to assess under filed conditions. To address this issue of great concern field and laboratory studies were conducted to assess its rate of release under field conditions and in lysimeter under controlled conditions. Incubation study was performed to assess nitrogen mineralization into nitrate and ammonium form under different levels of moisture (50, 60, 70, 80, 90 and 100% of FC). A lysimeter trial was conducted using optimized levels of deficit irrigation (I0.6 and I0.8) and full irrigation (I1.0) along with four levels of dairy manure (10, 15, 20 and 25 Mg ha-1) to assess best combinations of manure and deficit irrigation. Solution samplers already installed at 30, 60, 90 and 120 cm depths in lysimeter were used for leachate collection. Two year field study was conducted using best combinations of deficit irrigation and dairy manure (I0.6DM20, I0.6DM25, I0.8DM20, I0.8DM25) along with three levels of nitrogen fertilizer (80, 100 and 120 kg ha-1). Soil sampling was done before sowing and after crop harvest for the analysis of mineralized nitrogen (NO3 and NH4), soil chemical and biological indicators like soil organic carbon, pH, total N, available P and K. Soil physical health indicators viz. bulk density (BD), total soil porosity (TSP), infiltration rate (IR), soil strength (SS) and hydraulic conductivity (HC) were determined. Manure application at 25 Mg ha-1 increased the yield of wheat by 35% under lysimeter. Manure showed additional advantage on soil health indicators, i.e. higher SOC contents, IR, HC and TSP and decreased BD and SS. Application of dairy manure at the rate of 25 Mg ha-1 under deficit irrigation (I0.8) resulted in grain yield equivalent to that under 100% FC and improved soil physical health. Application of high rates of dairy manure resulted in more nitrate leaching at 120 cm under full irrigation, while under deficit irrigation leaching occurred above critical limit only up to 60 cm soil depth. Results concluded that deficit irrigation level I0.8 has shown best results with DM25 and N120 on wheat crop yield and soil health indicators with minimum nitrate nitrogen leaching losses.